Edited version of your written advice

Authorisation Number: 1013056141277

NOTICE

This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1052284391635.

Date of advice: 21 July 2016

Ruling

Subject: Acquisition of adviser services

Question 1

Does Entity A make a reduced credit acquisition (RCA) where Advisers provide Adviser Services in respect of members' accounts in and investments held within Entity A?

Answer

Yes, Entity A makes an acquisition of the Adviser Services and these services are a RCA. As the Adviser Services are covered by paragraphs 32(b)(iii) in item 32 of subregulation 70-5.02(2) of the GST Regulations, this acquisition will attract a reduced input tax credit at a rate of 75%.

However this response does not apply to non-resident Advisers which are dealt with in Question 2.

Question 2

Does Division 84 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply where Entity A acquires supplies of Adviser Services from non-resident Advisers for supplies not connected with the indirect tax zone?

Answer

Yes, Division 84 of the GST Act applies where Entity A acquires supplies of Adviser Services from non-resident Advisers for supplies not connected with the indirect tax zone. Entity A will be liable to pay GST in relation to these supplies.

Where Entity A is liable to pay GST under section 84-5 of the GST Act on the acquisitions it makes from non-resident Advisers, Entity A will be able to claim a reduced input tax credit under Division 70 of the GST Act.

For the same reasons outlined in Question 1 the acquisition of the Adviser Services is a RCA. As the Adviser Services are covered by paragraphs 32(b)(iii) in item 32 of subregulation 70-5.02(2) of the GST Regulations, this acquisition will attract a reduced input tax credit at a rate of 75%.

Relevant facts and circumstances

Entity A is registered for GST.

The trustee of Entity A (trustee) is the holder of an Australian Financial Services Licence (AFSL).

The trustee is carrying on, in its own capacity, an enterprise that includes making taxable supplies to Entity A.

The trustee owns and operates an internet based investment and reporting platform which is accessed and utilised by investors (and their nominated financial advisers) that invest in financial products of the trustee.

The investment platform facilitates the purchase and sale of a wide range of financial investments, including term deposits, listed domestic and listed international securities and also interests in managed funds. The platform also provides users with extensive reporting functions in respect of investments and transactions undertaken.

Entity A is an APRA regulated superannuation fund, which has a significant number of members who maintain their own individual account with Entity A. Members of Entity A have the ability to determine the composition of their own asset portfolio that represents their account within Entity A. Members (and certain financial advisers nominated by members that register with the trustee) determine the various investments that are held within their member account in Entity A. They can directly action buy/sell decisions for a range of listed equities, managed funds and other financial products using the investment platform. Members and/or their nominated advisers are therefore directly responsible for the investment decisions and for monitoring and management of the asset portfolio within their account, which collectively comprise the asset base of Entity A overall.

The financial product which is an interest in Entity A provides members with a number of the benefits that would normally be associated with a self-managed superannuation fund within the framework of a single master fund, with the additional benefits (and reduced costs) of a shared compliance/regulation framework and a streamlined reporting and administration system.

The trustee provides certain trustee and administrative services to Entity A and also provides members (and nominated financial advisers that go through the registration process) access to the investment platform that the trustee operates.

Application for membership of Entity A

In order to acquire an interest in (i.e. open an account with) Entity A, prospective members are required to complete a detailed Application Form. The Application Form allows the prospective member to nominate an individual or corporate financial adviser (with an authorised individual representative) along with the details of the holder of the relevant AFSL under which those advisers operate. It also requires the prospective member to specify the amounts of any fees payable to advisers by way of deduction from the member's account balance in Entity A and to expressly authorise payment of these fees by Entity A. These fees may be nominated as fixed dollar amounts or a percentage of the relevant amount (or a combination of both). Such fees payable are collectively referred to herein as "Adviser Service Fees".

The trustee requires that the nominated adviser and, in cases where the adviser does not hold an AFSL and is operating as a duly authorised representative of another entity that holds the relevant AFSL (the licensee), register with the trustee. For the trustee to accept the member's application and nomination of a financial adviser, the nominated adviser and licensee are required to subject themselves to registration terms and conditions that form part of a contractual framework.

There are two major agreements that form the essence of this framework which will be collectively known herein as the "Agreements".

The Agreements set out the obligations of Advisers in respect of their registration and the obligations of the trustee to Advisers, including the basis on which access to the online investment platform is made available, conditions that such persons are required to adhere to in order to maintain their registration and other relevant matters. Given that Advisers that register under the trustee adviser framework are likely to be involved in relation to multiple products offered for ease of administration a single set of Agreements is used to cover all financial products.

The Agreements are complementary and many of their terms are quite similar, although there are some key differences to cater for the fact that the roles of Licensee and Adviser are different. The financial advice will be provided by either the Licensee or by the Adviser in its capacity as authorised representative of the Licensee; accordingly it is the Licensee that is entitled to and is paid Adviser Service Fees in respect of the financial advice provided.

The Agreements sets out the trustee's obligations to the Adviser in terms of access to the website platform and other matters, followed by a set of provisions that outline the obligations in relation to Adviser Representatives that operate under their AFSL. Amongst other things, the Agreement provides that the Advisers are responsible for all advice provided to their clients and whilst the trustee may provide information in relation to the products, the trustee does not provide personal advice.

Advisers are able to instigate investment actions in respect of their Client member's account on the online investment platform, including buy/sell decisions and to have access to the reporting and monitoring functions of the portal in respect of the member's interest in Entity A. The services provided by an Adviser in respect of a member's interest in Entity A would generally include advice about the product generally, recommendations as to choice of investments within the member's account and monitoring of same. These services, in consideration for which Adviser Services Fees are payable, will be referred in this Application as "Adviser Services".

Entity A Product Disclosure Statement (PDS)

As part of the overall Adviser framework, the PDS and the supplementary PDS provides certain details in relation to Adviser Service Fee arrangements.

The supplementary PDS provides the various types of Adviser Service Fees that may be payable, which include both upfront and ongoing fees of various types.

Entity A Trust Deed

The Trust Deed contains provisions that are understood to be relevant to the payment of Adviser Service Fees:

Raising of Recipient Created Tax Invoices (RCTIs)

Under the current Adviser framework, RCTIs are periodically raised in respect of the Adviser Services supplied. These RCTIs are raised by the trustee and issued to the relevant Adviser. This ensures that a standardised format of documentation is obtained in respect of Adviser Service Fees by Entity A. Under the current framework, the trustee thus raises RCTIs on behalf of Entity A, with the relevant acquisition being recorded as that of Entity A for BAS reporting purposes.

Payment of Adviser Service Fees

Adviser Service Fees are paid out of assets in Entity A and treated, for financial accounting purposes, as an expense of Entity A, which is then allocated to (i.e. deducted from) member accounts in Entity A, net of any RITCs that are able to be claimed (as outlined in the PDS).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 11-5

Section 11-15

Section 40-5

Section 70-5

Section 70-10

Division 84

Section 84-5

A New Tax System (Goods and Services Tax) Regulations 1999:

Subregulation 40-5.09(3)

Regulation 70-5.02

Subregulation 70-5.02(2) item 32

Reasons for decision

Question 1

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

(words denoted by asterisks are defined in section 195-1 of the GST Act)

Entity A is registered for GST and its acquisition of Adviser Services is made for consideration. What needs to be considered is if (a) and (b) is applicable to Entity A.

Taxable supply

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) You are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed

Given the facts as set out above, the Advisers are making a supply of Adviser Services to both their clients and to Entity A. The Advisers make the supply in order to obtain a payment of an Adviser Service Fee from Entity A. Whilst the Advisers are furnishing their clients with Adviser Services when they manage their client's interest in Entity A financial products, Entity A is also deriving a benefit from the supply of these services through the administration of its products. Accordingly, it is considered that the Adviser Service Fees is the consideration Entity A provides in relation to these services such that paragraph 9-5(a) of the GST Act is met. Therefore, on the understanding that the Adviser meets the remaining requirements and makes a taxable supply under section 9-5 of the GST Act we consider that Entity A will satisfy paragraph 11-5(b).

(We note that the issue of non-resident Advisers is addressed in Question 2).

Creditable purpose

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise, but excludes acquisitions relating to making input taxed supplies or acquisitions that are or a private or domestic nature. Financial supplies are input taxed in accordance with section 40-5 of the GST Act.

The provision, acquisition or disposal of an interest in Entity A is a financial supply that would be input taxed under item 4 (item 4) in the table of subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). That is, item 4, amongst other things, deals with 'a regulated superannuation fund' such as Entity A.

As Entity A has exceeded the financial acquisitions threshold it does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed - financial supplies. However, section 70-5 of the GST Act provides that specified acquisitions which relate to the making of financial supplies may entitle you to reduced input tax credits. These acquisitions are known as reduced credit acquisitions.

Section 70-10 of the GST Act extends the meaning of creditable purpose so that a reduced credit acquisition which relates to the making of a financial supply can be for a creditable purpose to the extent that it relates to the making of a financial supply.

Regulation 70-5.02 of the GST Regulations sets out the reduced credit acquisitions which relate to making financial supplies and gives rise to entitlements to reduced input tax credits. Accordingly, it is necessary to consider, in light of regulation 70-5.02, whether the acquisitions made by Entity A from the Advisers (in the course of providing the above mentioned financial supplies) are reduced credit acquisitions.

Item 32 in the table in subregulation 70-5.02(2) of the GST Regulations (item 32) states:

Supplies acquired by a recognised trust scheme, to the extent that:

(a) the supplies are acquired on or after 1 July 2012; and

(b) the supplies acquired are not:

(i) …

(ii) …

(iii) a service covered by paragraph (a), (b) or (e) of item 23; or

(iv) ...

The application of item 32 allows a recognised trust scheme (RTS), such as Entity A, to be entitled to a RITC for acquisitions at the lower rate of 55% to the extent that the acquisitions are not excluded under item 32. A RITC at the rate of 75% is available to the extent that an acquisition is covered by paragraphs 32(b)(ii) - (vii) of item 32.

Item 23 in the table in subregulation 70-5.02(2) of the GST Regulations (item 23) list fund management services that are reduced credit acquisitions. In particular item 23(a) lists management of a client's asset portfolio' as a reduced credit acquisition.

From the facts provided, it is considered that the supply made by the Advisers includes managing the client's asset portfolio and therefore acquisitions made by Entity A in relation to these supplies by the Advisers will fall within the scope of Item 23(a). Hence the acquisition of the Adviser Services by Entity A are covered by paragraph 32(b)(iii) and consequently the Adviser Service Fees are subject to RITCs at a rate of 75%.

Question 2

Division 84 deals with supplies (of things other than goods or real property) taking place outside the indirect tax zone. The GST on a supply that is a taxable supply under this Subdivision is "reverse charged" to the recipient of the supply. Section 84-5 of the GST Act states:

(1) A supply of anything other than goods or *real property that is:

(a) a supply not *connected with the indirect tax zone; or

(b) a supply connected with the indirect tax zone because of paragraph 9-25(5)(c); or

(ba) subject to subsections (1A) and (1B), a supply connected with the indirect tax zone because of paragraph 9-25(5)(d);

(c) is a taxable supply if:

(ca) the recipient of the supply does not acquire the thing supplied solely for a *creditable purpose; and

(d) the supply is for *consideration; and

(e) the recipient is *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Goods and Services Tax Ruling GSTR 2000/31 Goods and services tax: supplies connected with Australia (GSTR 2000/31) consider the effect of Division 84 on the question of whether a supply is a taxable supply, GST-free or input taxed. Relevantly paragraph 37 of GSTR 2000/31 provides that if the acquisition of the thing (other than goods or real property) by the recipient relates to making supplies that would be input taxed, the supply is treated under Division 84 as a taxable supply.

Paragraph 38 of GSTR 2000/31 provides that the GST on a supply that is treated as a taxable supply under section 84-5 is payable by the recipient of the supply and is not payable by the supplier. Hence the charge for GST is reversed.

Section 84-5 of the GST Act applies to Entity A for the provision of Adviser Services by non-resident Advisers to Entity A as the supply relates to Entity A making supplies that would be input taxed. Therefore Entity A will be liable to pay GST in relation to these supplies.

Where Entity A is liable to pay GST under section 84-5 of the GST Act on the acquisition it makes from non-resident Advisers, Entity A will be entitled to an input tax credit by claiming a reduced input tax credit under Division 70 of the GST Act.

For the same reasons outlined in Question 1 the acquisition of the Adviser Services is a RCA. As the Adviser Services are covered by paragraphs 32(b)(iii) in item 32 of the GST Regulations, this acquisition will attract a reduced input tax credit at a rate of 75%.