GST: Proposed change to RITC recovery for bundled trustee services
Treasury has released details of a proposed change to the GST Regulations that will have a direct impact on GST input tax recovery by managed investment schemes and certain superannuation funds.
The proposed change affects the GST reduced input tax credit (RITC) rules for ‘bundled’ trustee and responsible entity services. Its purpose is to address the GST advantage the ATO believes is being experienced by entities using single fee trustee arrangements. Broadly, the proposed changes would, in many circumstances, limit managed investment schemes and superannuation funds to claiming a lower level RITC of 55% (rather than the normal 75% level) for the GST incurred on the trustee and responsible entity services they acquire.
Who would be affected?
The new rule is proposed to apply in relation to services acquired by a ‘recognised trust scheme’, which includes a managed investment scheme, an approved deposit fund, a pooled superannuation trust, a regulated superannuation fund (other than a self-managed superannuation fund) and a public sector superannuation scheme.
The new rule would only apply if the entity acting in the capacity of trustee of the recognised trust scheme is carrying on, in its own capacity, an enterprise that includes making taxable supplies to the recognised trust scheme.
What acquisitions would the 55% RITC apply to?
In broad terms, the reduced 55% RITC rate would apply to all services acquired by a recognised trust scheme on or after 1 July 2012, where the entity acting as the trustee makes taxable supplies to it. It appears that the 55% RITC would apply regardless of whether the services are acquired from the trustee (i.e. as part of a bundled arrangement) or are acquired by the recognised trust scheme directly from the service provider.
Importantly, certain services are proposed to be excluded from the application of the 55% RITC (i.e. the standard 75% RITC could be available). These include particular brokerage services, certain investment portfolio management functions, certain administrative functions in relation to investment funds, some custodial services and specified master custody services.
The proposed change differs from the approach previously flagged by Treasury which, in general terms, would have required entities acquiring bundled trustee and responsible entity services to ‘unbundle’ the package to determine the eligibility of each component for an RITC. Such an approach is now considered too complex and administratively burdensome for taxpayers.
Treasury has invited public comment about the proposed change (and several others), as set out in the exposure draft amending regulations and an explanatory memorandum. Submissions can be made until 24 February 2012.
You should review the likely impact of the introduction of the new 55% RITC on your recognised trust scheme’s level of input tax credit recovery and consider whether there are grounds for urging Treasury to modify the approach being proposed. If you wish to discuss the potential application of the proposed change in more detail, please contact a Deloitte Indirect Tax adviser.