The Inland Revenue has released an officials’ issues paper which includes possible changes to the GST treatment of management fees charged to managed funds.
Broadly, Inland Revenue is concerned that the GST treatment of investment management services provided to managed funds is complex and inconsistent. In particular, some investment managers have been treating a proportion (generally 10%) of management fees charged to unit trusts as taxable supplies that are subject to GST. Other managers have been treating all management fees charged as subject to GST, on the basis that it involves the provision of advice. Again, some managers have been treating all management fees as exempt. The GST treatment has a direct impact on an investment manager’s ability to recover GST and the GST paid by the managed fund.
In order to resolve this concern, the Inland Revenue have proposed a number of possible options. These options include:
- treating all management services supplied by investment managers and other fund managers as taxable supplies;
- exempting all management services supplied by investment managers and other fund managers;
- treating management services supplied by investment managers and other fund managers as partly taxable and partly exempt; and
- treating management services supplied by investment managers and other fund managers as zero-rated (and applying a reduced input credit mechanism).
The Inland Revenue is seeking submissions in relation to the above options by 9 April 2020. The officials’ issues paper is proposing prospective changes, that would apply from 2021, and which will require a more consistent approach going forward.
You can find the officials’ issues paper here and the comments in relation to management services are set out from page 49.
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