NZ’s fund management industry will have to wait at least a few more months for clarity on how GST applies to fees.
A spokesperson for the Inland Revenue Department (IRD) said the tax authority was “still considering our response” to industry feedback on two consultation papers closed off in March last year.
Released in February 2017 after some delays, the two IRD consultation papers – covering GST on unit trust fees and outsourced services, respectively – reinforced the official position that retail fund fees should not attract the sales tax.
Under current ad hoc arrangements, GST applies to 10 per cent of retail fund management fees.
However, as well as removing the ability to charge any GST the IRD proposal also confirms managers would have to pay the 15 per cent sales tax on externally-supplied administration services.
In the 2017 papers, the IRD says services such as fund accounting and registry would not attract GST if performed in-house but:
“If any of the services supplied by a third party to the manager of a unit trust are taxable supplies, the manager will not be entitled to an input tax credit on those supplies.
“This is because the services are acquired by the manager for the purpose of making exempt supplies.”
The issue dates back more than three years to an IRD paper first floated in 2014 proposing the removal of GST on manager fees.
If implemented, the proposal could put pressure on some fund manager operational models – particularly those not ensconced in diversified financial institutions.
While the GST questions remain unanswered the IRD has published its position on the possibly less-complex cryptocurrency debate.
In a guidance paper released early in April the IRD deemed cryptocurrencies such as Bitcoin would be treated as property – liable for capital gains tax if the intended reason for purchase is to later sell at a profit.
Tony Morris, the IRD customer segment leader in charge of the crypto-work, said in a statement: “Just like with property – when you acquire cryptocurrency for the purpose of selling or exchanging it, the proceeds you make from selling it are taxable.
“The purpose is hard to argue here since with Bitcoin and other cryptocurrencies, generally the only time they produce an income is when they change hands.”
The paper likens cryptocurrencies to gold bullion, which the IRD recently ruled should be taxed for capital gains in most cases.
According to the IRD, the crypto-tax also applies where any alternative currency is exchanged for another or used to purchase other goods or services.
Furthermore, cryptocurrency ‘miners’ would also be liable for tax whether operating alone or as part of a pool.
“We consider cryptocurrency mining to generally be an activity aimed at making a profit, not a hobby,” the IRD says.
So-called ‘initial coin offerings’ – or ICOs – that typically raise fiat capital by issuing cryptocurrency or some form of digital token, also come under IRD purview.
“The tax implications of an Initial Coin Offering will depend on the unique features of the cryptocurrency being issued and how it’s distributed,” the IRD says. “You may want to consider applying for a binding ruling to gain certainty about tax requirement.