Effective, 1 July 2012, the GST regulations have been amended (item 32 of GST regulation 70-5.02(2)) as they apply to managed investment schemes.
The Reduced Input Tax Credit (“RITC”) of 75% on the GST paid on a fund’s expenses is being further reduced to 55%. There is some relief in that some expenses such as audit fees and legal fees, which previously were not entitled to RITC, now being permitted a 55% RITC. The changes to the RITC regime has meant that fund administrators, fund managers and trustees have had to adjust pricing models and workpapers to take account of these changes.
This has impacted BASs for 31st July (for monthly GST reporters) and will impact 30th September BAS onwards (for quarterly GST reporters).
The purpose behind the change to the GST regulations and the amount of RITC claimed is to prevent bundling. ie. the practice of funds managers bundling all of a fund’s operating costs into a single management fee charge and the fund claiming RITC of 75% on the entire amount of the management fee.
It is important to note that RITC of 55% will apply to the GST paid on a funds operating costs, where RITC was not claimed beforehand for eg. Audit, tax and legal fees will be entitled to a RITC of 55%.
Further complication exists where Trustee and RE services are bundled with investment portfolio management fees and charged as a single management fee. In this case, the management fee will need to be apportioned between the 2 services as RITC on Trustee and RE services is only 55% whereas Investment portfolio management services is 75%.
The table below provides an overview of the current RITC rate and the RITC rate to apply from 1 July 2012 (the effective date):
|Services Supplied to a Recognised Trust Scheme||Old Rate||New Rate|
|Trustee and RE services||75%||55%|
|Fund administration fees||75%||75%|
|Investment portfolio management services||75%||75%|
|Establishment of a trust (eg. Legals for Trust Deed and PDS) through facilitation and arrangement agreement||75%||55%|
|AML and CTF reporting and monitoring||0%||75%|
|Other fund expenses||0%||55%|