Adviser fees & GST

The ATO’s recent change of mind in relation to adviser fees means super fund trustees will no longer be allowed to claim reduced input tax credits on the GST component of some adviser fees. But which ones? And will SMSFs be impacted?

The ATO has recently been reviewing adviser fee arrangements and super funds, including:

• who is liable to pay the adviser fees,
• what are the services being provided by advisers, and
• under what circumstances do funds make payment of adviser service fees.

They’ve called out one particular arrangement where, in the ATO’s view, super funds are not eligible to claim reduced input tax credits (RITCs) for adviser service fees.

This arrangement involves individuals engaging an adviser to provide them with personal financial advice. The advice relates to the individual’s interest (or prospective interest) in a super fund. The adviser invoices the individual, who then requests their super fund to make payment of the invoice to the adviser, by deducting the amount from the individual’s balance in the fund.

In this situation, the super fund is not eligible to claim a RITC for the GST portion of the fee paid to the adviser. This is simply because the taxable supply of adviser services was not made to the fund, it was made to the individual. The fund simply facilitated payment of the invoice from the individual’s account in the fund.

The ATO has indicated they’ll adopt a “no compliance action” approach for periods before 1 July 2024 (ie funds simply need to make changes to their systems to ensure RITCs are not claimed on these fee payments from 1 July 2024 onwards).

So, how does this impact SMSFs?

Well, in theory, it shouldn’t.

The personal advice fees of members aren’t generally paid from SMSFs as that would likely lead to a breach of the sole purpose test. Note, non-SMSFs are subject to different rules – non-SMSFs are permitted to deduct some of these fees from a member’s account in the fund with the member’s consent.

But where advice is provided to a GST registered SMSF in relation to the ongoing management of the fund’s investments, the fund remains eligible to claim RITCs on the fees paid for those services.

In practice though there may be some changes. We are aware that some investment platforms used by SMSFs facilitate the payment of the adviser’s monthly portfolio management fee via the platform. The platform claims the RITC with only the net amount being deducted from the fund’s account. From 1 July 2024, this arrangement is likely to change – the platform will deduct the full cost of the adviser fees from the fund’s account because the platform is not eligible to claim the RITC.

But that doesn’t mean SMSFs need to wear the full cost of these fees going forward. If the fund is registered for GST, it remains eligible to claim the usual 75% RITC on fees relating to the management of the fund’s investment portfolio. It will simply need to do so via the fund’s quarterly business activity statement or annual GST return.