Insurance
IRD sets tight schedule for GST registration
Friday 20th of February 2009
In a letter sent out to advisory firms and insurance companies last week, the IRD said it would “take no other action” against advisers if they had a good tax history, had not earned non-commission income subject to GST and met these four demands by the end of May this year:
- Register for GST effective April 1, 2009;
- Supply the IRD with a summary of all commission earned in the year to December 31, 2008, showing both life and non-life income;
- Provide the IRD written confirmation from each relevant insurer the adviser has not claimed input tax on non-life commission paid, and;
- Show the IRD all other non-commission income earned in the year to the end of 2008.
However, risk advisers have been given some relief in that the annual income threshold for GST registration is set to rise from $40,000 to $60,000 once the government's new tax measures are confirmed.
As well as writing directly to known advisers, the IRD is also contacting dealer groups and insurance companies requesting they pass on the information to all non-GST registered advisers and provide feedback to the tax department.
“Please provide Inland Revenue with a list of the advisers contacted and details of their GST taxable commission and GST exempt commissions paid in the year to 31 December 2008,” the IRD letter says.
Martin Scott, IRD group manager insurance, told ASSET magazine this month that GST liable products included income protection, fire and general, health, disability and medical insurance but warned advisers to review all policies they sold.
“It is not possible to develop a definitive list [of GST-liable products] as there may be differences between the risks covered by products sold under the same general heading, and by different insurance companies,” Scott said.
In its letter to advisory firms the IRD also said that insurance policies with “non life rider benefits, such as a lump sum payment on temporary or permanent disability”, would also be liable for tax.
“Where additional commissions result from the sale or maintenance of non-life insurance products or benefits then this commission will be subject to GST,” the IRD letter says.
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@first time caller - I can see the complexity you highlight, but as above, investors should be able to see what they are paying without having to reference multiple documents. Investment admin can track and report deductions for tax, withdrawals, fees et al, would be /should be straightforward to aggregate advice fees into costs at member level... at least I hope so.
22 hours ago Goldcard
FMA wants clearer fees
@goldcard - how would you propose that a fund manager calculates the TER to include adviser fees given not all clients pay them and different advisers charge different fees, not to mention some advisors charge different fees to different clients? The advice fee gets disclosed in the adviser's disclosure statement and the statement of advice, so the client can add that to the published TER of the fund they are invested in to see how much they are paying overall.
1 day ago First time caller
FMA wants clearer fees
Schedule 4 of the FMCA regs 2014, particularly clauses 2(1) and 53(3) provide the basis for excluding individually charged advice fees from the statutory TER. This was introduced with the best of intentions, but now it is little more than an invisibility cloak for deductions from member accounts.
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@Ross The evidence is pretty clear on that. When advisers work in the best interests of their customers, as opposed to putting their customers into the products that pay them the most, outcomes are improved. (Makes sense doesn't it? Financial advisers go from sales people for fund companies to client fiduciaries.) It might reduce access, but does someone with $50K in a KiwiSaver really need investment 'advice'? A risk profile questionnaire or similar is a much better way to help consumers get into the right fund, i.e. move from a Balanced Fund to a Growth Fund. Why have more developed investment markets, e.g. US, UK, Canada, Aus, Netherlands etc. have banned adviser commissions from fund providers? I'd also add that there is a large group of KiwiSaver customers that are paying someone an advice fee without getting anything beyond a cursory email once a year in exchange. As @Paul says, it's 'easy money' for advisers...
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