FSC hopeful of GST decision this year

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It’s too early to worry that a change to GST rules could lead to heftier fees for investors, the Financial Services Council says.

Monday, February 23rd 2015, 6:00AM 2 Comments

by Susan Edmunds

The IRD is reviewing the exemption that allows fund investors to pay GST on only part of their management fees.

They pay the 15% GST on 10c in every dollar paid in fees.

The deal was negotiated 14 years ago by the FSC and its chief executive Peter Neilson said he hoped it would continue. The current deal expired in 2013.

Neilson said the IRD had taken a view that it wanted to review all agreements that came up for renewal, on principle. “That’s the only reason it’s been delayed.”

Financial services were exempt from GST in most countries, he said, but the IRD has to determine what should be included in the definition of financial services in New Zealand.

He said the IRD had indicated it had not yet formed a view on what the new agreement would be.

“There’s always been, since GST was put in place, an exemption for financial services.  But the question is where does the boundary for financial services finish? Which parts are included and not included? It’s an ongoing boundary issue that has to be renewed as technology changes.”

Neilson said there was a degree of uncertainty about how much investors could be affected. Some clients have been warned that a review is under way.

Any extra GST to pay would likely create the biggest burden for low-return investments. But Neilson said it was not a clear-cut concern yet.

“To the degree that it changes, if it increases the GST paid that will be a cost to investors, if it’s reduced there will be an improvement in return.”

He said all parties were working to have the review completed this year. “We’d prefer a transition period. It’s not an area of major dispute  but it’s come up and had to be reviewed.”

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