Significant tax changes no longer on the horizon for managed investment schemes
As an update to our earlier alert below, we understand that the Government will now withdraw The Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill and introduce a new bill next week having removed the proposed changes relating to GST on investment management fees. This U-turn comes following significant media backlash over those GST changes, which could have resulted in the overall costs incurred by managed investment schemes increasing. While we expect that the changes will be removed entirely, it is possible that they will just be removed for KiwiSaver funds.
While it is good for investors in that they will not bear the consequences of additional GST, it will be disappointing if the matter is simply dropped, as the GST treatment of investment management fees needs to be addressed. The lack of clarity in the GST rules and resulting inconsistency in the treatment of GST across the funds management industry is undesirable. This issue has been known for many years and in our view the time to resolve it is long overdue.
The Officials’ Issues Paper in February 2020 looked at several options, which are summarised in our article below. Our overall preference would have been for investment management fees to be zero rated. This would have enabled fund managers to claim GST on their costs in full, while not passing on an additional GST cost to the funds. This would have addressed the current inconsistences that exist for different types of managers and service providers.
There will be an opportunity to submit on the new bill, and we would encourage industry participants and their advisers to persist in engaging with that process, despite the likely headwinds from the political context that has developed over the last few days.
Read our previous updates below:
GST on management fees - Inland Revenue releases issues paper | Insights | DLA Piper Global Law Firm
