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GST on fees idea dropped

The Government has backed down, for now, on one of the more controversial ideas in its GST on financial services discussion paper.

Thursday, May 1st 2003, 7:03AM

by Philip Macalister

Finance Minister Michael Cullen has said that the Government will not go ahead with one of the more controversial ideas in its discussion paper on imposing GST on financial services.

In that paper, released last year, there were two main areas of impact on the financial planning sector.

One was the idea that business-to-business supplies to financial services be subject to GST at 0% and the more controversial was to exclude third party supplies, such as brokerage services, from the definition of financial services, thus making them subject to GST at 12.5%.

With the latter proposal advisers, as third parties, would have to charge GST on their services.

However, Cullen told a superannuation conference on Tuesday that yes, zero rating of business-to-business supplies would go ahead, but that changes to GST on brokerage would remain unchanged.

“I know that one proposal in the discussion document relating the treatment of brokerage and other third party fees was not popular,” he said.

“Having considered the submissions made on this issue by your industry, including the costs that it would incur, I have decided that this issue will not be advanced as part of the government's tax policy work programme.”

While the decision has been well received, KMPG tax partner John Cantin warned that the idea is not dead and buried.

He warned that the industry needed to make sure the proposal wasn’t floated again in the future.

Cullen says the proposal on zero rating of business-to-business supplies was well supported by the financial sector as it would increase for many the ability to claim back the cost of GST on the goods and services needed for their businesses.

This proposal is planned for inclusion in a tax bill to be introduced shortly, he said.

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