Two RITC rates make GST complex: DHL Piper
Trustees and responsible entities may need to unbundle individual components of the services acquired by their funds under the Government's new Goods and Services Tax (GST) Regulations, according to DHL Piper.
Implementing two reduced input tax credit (RITC) rates is likely to increase the net cost of GST for most affected trusts and increase GST complexity and administration, according to Jonathan Ackerman, special counsel for DHL Piper.
He said investment trusts and superannuation trusts entitled to a 75 per cent RITC rate on non-financial supply services, such as trustee and responsible entity services, will receive a 55 per cent RITC rate on certain supplies after 1 July 2012.
"The Government has given the industry just five weeks and most trustees are likely to struggle with this timeframe," Ackerman said.
He said supplies provided by trustees, responsible entities and third parties to a 'recognised trust scheme', including managed investment schemes and a number of superannuation funds, would be affected. Securitisation and mortgage trust are exempt from the new rules.
Ackerman said proximity to the start date means trustees and responsible entities will want to urgently seek understanding of the changes and how they will affect their funds.
Trustees and responsible entities will first need to make any necessary changes to fees and charges set out in existing trust disclosure documentation, such as management fees in Product Disclosure Statements and Information Memoranda, according to Ackerman.
He said trustees and responsible entities would also need to determine which fund services attracted the two separate rates.
"In order to conduct this exercise, trustees and responsible entities will need to identify components of the services acquired by their funds," he said.
Ackerman said a responsible entity charging single management fees may need to "unbundle its services into distinct components, including investment management, administrative services, trustee services, and compliance with AML (anti-money laundering) and other regulatory requirements".
According to DHL, brokerage services, investment portfolio management functions, administrative functions for investment funds, custodial services and master custody services, and AML monitoring and reporting services (excluding taxation and auditing services) will continue to be charged at the 75 per cent RITC rate.
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