The two Questions We’ve Been Asked (QWBA) documents released on Thursday were expected as long ago as July last year.
The two documents propose that fees paid to the manager of a unit trust are not subject to GST but that administrative services, such as registry, fund accounting and unit pricing by a third party under a contract with the manager, are taxable.
The documents say the fees are exempt because the supply of financial services, and other goods and services that are reasonably incidental and necessary to the supply of those services, are exempt.
That would cover activities including issuing, redeeming, or re-purchasing units, paying to the trustee amounts received for the issue of units, investing the trust property, collecting and distributing amounts in respect of investments or units, and administering the unit trust including maintaining a register of unitholders, and accounting and other records.
“A unit trust may invest in debt securities, equity securities or participatory securities, including units in another unit trust. The manager receives payments from investors for units, pays these amounts to the trustee, and collects and distributes amounts in respect of units or securities (or arranges these activities). These activities are financial services. Therefore, the fees relating to these activities are not subject to GST as they are consideration for an exempt supply.”
At the moment, 10% of unit trust management fees attract GST.
Removing GST from fees would have the biggest effect on boutique fund managers, because if they do not charge GST they cannot offset GST against their costs. There has been speculation this could lead to higher fees to cover expenses.
Some boutique fund managers had hoped the IRD might decide that 100% of their fees should attract GST.
Bigger fund managers would be able to shift their GST-related expenses to other parts of the business.
The IRD started talking to local fund managers about the issue in 2015.
Submissions can be made on the QWBA until March 23.
Fund managers have been approached for comment.
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