GST treatment of investment management fees charged to managed funds

Inland Revenue released its draft Interpretation Statement (IS) (PUB00486) on 30 August 2024, which sets out the Commissioner of Inland Revenue’s preliminary view on the correct GST treatment of investment management fees charged to investment funds.

In summary, the draft IS concludes that investment management fees should be treated as exempt. This approach is a departure from the previously agreed approach, and the approach taken by most investment fund managers, to charge GST on 10% of their investment management fees. For some time, a proportion of the investment management services provided by investment fund managers were considered to relate to the provision of “financial advice” (a taxable supply under the GST Act).

This IS may be welcomed by some, as it reduces GST costs for investment funds. However, the IS will be costly for some investment fund managers, as it could remove their ability to recover any GST on their costs. It will also result in a bias towards insourcing functions, rather than incurring the irrecoverable GST charged by an outsourced provider. For as long as this remains in draft, there will be some uncertainty for investment fund managers as to which approach they should now take.

Given the long history and complexity associated with this issue, we expect there will be some debate before Inland Revenue finalises its position. We understand that this IS is supported by an opinion from Crown Law, so it may be unlikely that Inland Revenue will change its view on the core issue. However, there remains an opportunity to submit on specific factual circumstances relevant to your business.

Opportunity to submit feedback

Inland Revenue is currently inviting feedback on this draft Interpretation Statement, with a submission deadline of 25 October 2024.