Issue
Is the entity, a trustee of a superannuation fund, making a reduced credit acquisition under subsection 70-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it engages an investment manager to manage the investment portfolio of the fund?
Decision
Yes, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act when it engages an investment manager to manage the investment portfolio of the fund.
Facts
The entity is a trustee of a superannuation fund. The entity, in its capacity as trustee for the superannuation fund, engages an investment manager to manage the investment portfolio for the superannuation fund.
The entity is not entitled to a full input tax credit on this acquisition, as the acquisition relates to making financial supplies and the entity exceeds the financial acquisitions threshold under Division 189 of the GST Act.
The entity is registered for goods and services tax (GST).
Reasons for Decision
According to subsection 70-5(1) of the GST Act, the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) may provide that acquisitions of a specific kind, that relate to making financial supplies, can give rise to an entitlement to a reduced input tax credit. These are reduced credit acquisitions.
The table in subregulation 70-5.02(2) of the GST Regulations (the table) sets out those acquisitions that are reduced credit acquisitions.
Item 23 in the table lists five categories of investment portfolio management functions, including those done for superannuation schemes, that are reduced credit acquisitions. Item 23(b) in the table lists management of an investment portfolio for a trust or superannuation fund.
The entity is engaging an investment manager to manage the investment portfolio of the superannuation fund. As such, the acquisition is covered by item 23(b) in the table.
Therefore, the entity is making a reduced credit acquisition under subsection 70-5(1) of the GST Act when it engages an investment manager to manage the fund's investment portfolio. [Note: Under subregulation 70-5.02(1) of the GST Regulations, an acquisition mentioned in subregulation 70-5.02(2) of the GST Regulations that relates to making financial supplies gives rise to an entitlement to a reduced input tax credit. To be entitled to a reduced input tax credit for a reduced credit acquisition, the entity must still make a creditable acquisition under section 11-5 of the GST Act. To make this possible, section 70-10 of the GST Act extends the meaning of 'creditable purpose' for reduced credit acquisitions. Where the entity makes a creditable acquisition of the reduced credit acquisition, the amount of the reduced input tax credit is 75% of the GST payable on the supply of the investment manager's services (subsection 70-15(1) and subsection 70-5(2) of the GST Act, and regulation 70-5.03 of the GST Regulations).]