The Inland Revenue Department (IRD) has slated two public consultation documents for release this month on proposed changes to the GST treatment of unit trusts.
According to the IRD schedule of works, the two draft QWBAs (for ‘questions we’ve been asked’) covering whether “services provided by a unit trust manager are a financial service” would be out in July.
The IRD note says the consultation documents have been prepared to “communicate IR’s changed views on GST treatment of the relevant fees”.
Paul Smith, EY tax partner, said the IRD was expected to publish a meatier “interpretation paper” on the fund fee GST issue this month, rather a QWBA, a format intended to clarify one-off items rather than provide a complete policy position.
Smith said it still wasn’t clear when the consultation process, which has dragged on for a couple of years, would be completed.
“The problem was originally the IRD only consulted with one group of fund managers,” he said, leading to a storm of protest from boutique firms in the wake of the tax departments call to remove GST from fund fees.
In October 2015 the IRD circulated a private discussion document outlining why fund management fees should be GST-exempt.
The 2015 IRD document says the financial services label applies across the four broad unit trust management activities, namely: issuing or redeeming units; handling cash flows; making and implementing investment decisions, and; administration.
Under current settings, unit trust management fees attract GST on 10 per cent of the total.
If adopted, the IRD call to remove GST from fund fees would likely have downstream effects on how managers charge for services, or even how they structure their businesses.
Without the ability to offset GST on input costs, boutique managers would probably have to hike base fees to cover any increase in expenses. However, funds housed within larger conglomerates are able to more easily shift GST-related costs between business units.
Smith said the impasse could be resolved by allowing managers to charge input tax credits on outsourced services – as in some overseas jurisdictions – as fund fees move to GST-exempt.
“The IRD needs to think outside the square,” he said. “I hope they come up with a sensible solutions that helps both parts of the industry and consumers.”
In the interim, there is little consistency for how funds disclose the GST component in fees.
Elsewhere in the 15-page to-do list, the IRD also says it is “considering submissions” on its controversial decision to tax gold, and other “non-income generating commodities”, on realised profits.
In an exposure draft issued this February, the IRD deemed virtually all gold, and other similar commodities, investments would be subject to tax on disposal.
The IRD paper argues gold is almost always “acquired for the purpose of disposal”, hence subject to income tax, while also dismissing claims that precious metals were primarily ‘hedging’ arrangements.
“That gold bullion may be described as an investment, or acquired to provide a hedge, does not suggest that it was not acquired for the purpose of disposal,” the IRD paper says. “Indeed, gold bullion only has value as an investment or hedge because it will ultimately be disposed of.”
Consultation on the gold paper, which was sparked after the matter was “raised externally”. closed early in April.
As well as dealing with ancient assets, the IRD has put the tax status of the new-fangled digital currencies on the agenda.
“There is interest in Inland Revenue stating how such currencies should be treated for income tax purposes – other revenue authorities have given guidance,” the IRD work schedule says.
However, the “income tax treatment of Bitcoin and other crypto-currencies” is last item on the current IRD list with no resources yet allocated to answering the question.
A number of vexing issues – including the fringe benefit tax 24-hour exemption rule for cars left at the airport, and the GST output tax on parking fines – rank above Bitcoin et al.