The Inland Revenue Department (IRD) is having another crack at resolving the perennial issue of GST on managed fund fees post the embarrassing government reversal in 2022.
In a note to industry sent late last year, the IRD says it would provide an update on the treatment of GST on unit trust fees by the end of February.
Most managers currently follow the standard practice of charging GST on just 10 per cent of managed fund fees with the remaining 90 per cent considered exempt supplies.
However, the IRD says managers can choose a different percentage of fees for GST purposes as long as the tax treatment of both income and expenses is consistent. Firms that adopt non-standard GST arrangements will also have to provide technical analysis to support those positions, the IRD note says.
After several attempts at aligning the ad hoc fund fee GST arrangement with broader tax policy in consultations dating back to at least 2014, the IRD shelved discussions in 2019.
But two years later the tax department dusted off the arguments again ahead of a surprise government legislative move to impose GST on 100 per cent of fund fees in August 2022.
Revenue Minister, David Parker, quickly reversed the proposed GST move in the wake of a heated public backlash.
“During extensive consultation views were mixed on the merits of the technical change. The large companies profiting from the current set-up were opposed to the change, while smaller providers were more supportive of the change. This was because these providers who did charge the full GST on their service fees faced unfair competition from the bigger players,” Parker said at the time.
“However since the announcement it has become clear that smaller providers now oppose it too.”
Previously, the IRD has toyed with making fund fees 100 per cent GST-able (as per the Parker solution) or totally exempt: both extremes create winners and losers depending on fund manager corporate structures.