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Fund manager GST up for debate again

Whether fund management fees should attract GST has been put up for discussion again, this time by the Tax Working Group.

Thursday, March 7th 2019, 6:00AM 4 Comments

John Berry

As part of its final report of proposals for the future of New Zealand's tax policy, the group flagged it as a problematic aspect of GST.

“Financial services are not subject to GST for reasons of administrative complexity. There is a strong in-principle case to apply GST to financial services but the group has not been able to identify a means of doing so that is both feasible and efficient. The Government should monitor international developments in this area.”

It’s been a divisive issue for the funds management industry.

Boutique managers generally charge GST on their fees but bigger fund managers often do not.

FSC members have an agreement with Inland Revenue to charge GST on 10% of management fees and 60% of trustee fees.

John Berry, chief executive of Pathfinder, said it was a tricky area.

He said the GST scheme as a whole had few exclusions, which made it simple to administer by international standards. “Why should [fund managers’ fees] be different? But you don’t pay GST on the interest on your mortgage because that’s a financial transaction. What is the service that fund managers provide – is it purely financial?”

Applying GST to fund management fees helped smaller firms, he said.

They had to pay GST on the services they outsourced to other providers, such as firms that priced units and maintained the manager’s records of who was on the register and how many units they held.

Not applying GST on management fees would incentivise businesses to keep those functions in-house, he said, which could create a less robust business model because there were fewer external checks imposed.

Inland Revenue last consulted on the issue in 2017 but there has still been no formal decision made.

A spokeswoman for the department said it would write to stakeholders next month and people who took part in the process to update them.

Tags: GST John Berry

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Comments from our readers

On 7 March 2019 at 11:03 am RanDerson said:
How will the 3 million KiwiSaver members react when you add 15% GST to their fund manager fees?
On 7 March 2019 at 12:57 pm Tash said:
Let me be the first to admit I know next to nothing about the GST law. I do however know that taxes are applied by operation of law. On what legal basis can "Boutique managers generally charge GST on their fees but bigger fund managers often do not." or FSC members to agree to " charge GST on 10% of management fees and 60% of trustee fees."?
Inland revenue are simply collectors of tax, they don't make the law.
On 7 March 2019 at 3:39 pm JPHale said:
Tash, like you I have about as much knowledge on this as any other business owner, simplistic and somewhat distanced.

I think what you are referring to is the rule of being registered which lets you charge GST on non financial transactions, i.e. Consulting, as in the same way an accountant might. Which enables them to charge it and then subsequently claim it from suppliers.

Though this is somewhat fraught with asset incomes as these won't necessarily help, as in it creates a proportional GST situation. For the larger firms they don't care as the metrics are way out of whack in favour of non GST income and there for they don't bother.

But both work on the current rule of not charging GST but one chooses to... It's a fun discussion with many small business owners, one difference here is the scale
On 8 March 2019 at 10:21 am Tash said:
Thanks JP but management fees are either subject to GST or not. If you provide 'taxable supplies' above the the threshold (can't remember what that is offhand, around $60,000PA)then you must register for and account for GST.
The article suggested to me that clients might be paying a GST when in fact their were not liable - if correct that would be a problem for me.

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