19 Sep 14
On the (lack of) tax training of financial advisers
MEMBER 137 writes:
"When is something going to be done about the lack of training for financial advisers who give incidental tax advice?
The current system is an absolute joke as my story will demonstrate. I have a client who has several rental properties one of which he has rented to his mother-in-law at a commercial rent for several years. The mother-in-law had too much by way of assets to qualify for an age pension so the financial planner advised her (and my client) to give my client a sum of money for which he would then grant her the right to live in the property she was renting for the rest of her life. This sum of money was calculated by Centrelink under the Granny Flat provisions and came to just under $220,000. Evidently, this amount is then deducted from her assets and she qualifies for a larger pension. My client asked the financial adviser if there were any tax consequences for him upon receipt of this money and the financial adviser said that there were no tax consequences, that the ATO would just treat it as a gift from a loving mother-in-law. My client then went ahead with all the arrangements and only months later told me about it when I was preparing his tax return.
I am sure that many of you reading this will immediately ask the same question I did – how is the receipt of $220,000 treated in the income tax return of the client? After checking with the ATO and doing some research I established that what I had been concerned about was correct – my client would have to pay capital gains tax on this amount. It is not a gift – he has sold a right to his mother-in-law. My client was obviously very upset and told the financial planner what I had said. The financial planner rang me full of bluster and bad manners and told me several times that I was totally wrong and that his company had set up this arrangement several times over the years and had never had a problem in the past. He even said that he had done exactly the same thing for his parents. However, when I asked him if he had declared the payment they made to him in his tax return his answer was 'Hell, no – why would I do that?'
I am sick to death of being the bearer of bad news and having to tell my clients that the advice they have received from a financial planner was incorrect and there were tax consequences as a result of what they had done when following that advice. Like the other client who set up a trust to own several negatively geared rental properties because the financial planner told her that she could then distribute the losses out of the trust to the beneficiaries best suited to receive such a loss!"
TAX COUNSEL THILINI WICKRAMASURIYA COMMENTS: As you may be aware from previous editions of TAXVINE, The Tax Institute has been very vocal against the lack of training required for financial advisers to give tax advice. Most recently, Senior Tax Counsel Robert Jeremenko CTA was interviewed on the SkyNews program, Richo+Jones (with Graham Richardson and Alan Jones) on 16 September 2014 regarding financial advisers giving tax
MEMBER 138 writes:
"As I read the latest article on financial planners giving tax advice, I reflect on the pain of putting a dozen of my team members through part or all of the RG146 process…despite their being SPAA accredited, holding Masters degrees in tax and super… But there is little/no recognition of such qualities. So off to the RG146 time and money waste we go.
Meanwhile the planners pull their tax registrations out of a corn flakes box…if at all. Easy to see who has the greater lobbying power on Capital Hill!"