Fund managers' GST rules get green light

Fund managers have been told the status quo can continue in regard to GST on their fees.

Monday, March 25th 2019, 9:00AM

The issue of whether GST should be applied has been a fraught one.

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

“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.”

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.

Inland Revenue consulted on two draft "questions we have been asked (QWBA)" and said the Commissioner received a wide variety of differing submissions.

"They included very different views on the extent to which the fees payable for the management of a unit trust are taxable (and therefore the extent to which input tax credits could be claimed).

"Having considered these submissions, the Commissioner accepts that different interpretations can be argued for and that the current law is unclear. It is also not clear that the conclusions expressed in the QWBAs reflect the desired outcome from a policy perspective. Given this, and the lack of clarity, further policy work is planned on this issue, but the timing of this policy review will be subject to other priorities.

"Because of the uncertainty as to the correct treatment and the proposed policy work, the Commissioner will not be finalising the draft QWBAs. She will instead continue to adopt her current practice on this matter, pending possible legislative change. This means the Commissioner will continue to accept taxpayers treating fees for managing a unit trust as 90% for exempt supplies and 10% for taxable supplies, as long as this is reflected in the level of input tax credit claims regarding those management fees."

Inland Revenue said in a letter to stakeholders that taxpayers might wake or want to take a different position.

"The Commissioner’s position is that taxpayers can adopt that approach pending the outcome of the policy review as long as both output tax and input tax are treated consistently. Taxpayers should ensure they are able to explain the technical basis for adopting their treatment."

Tags: GST