Continuous Disclosure: The infamous tax bill wasn't all bad ...

Revenue Minister David Parker. Photo / Mark Mitchell

Revenue Minister David Parker has been making headlines for pulling the pin on his proposal to increase goods and services tax (GST) on some investment fund fees.

While the proposal is dead, an industry group for chartered accountants still sees merit in addressing the inconsistencies in the tax system Parker sought to fix.

The issue is that while some fund managers pay 15 per cent GST for the services they provide, the system allows others to effectively pay 1.5 per cent, and others to pay nothing.

Parker wanted to bring the rate up to 15 per cent for all fund managers, even though this was expected to cost them an additional $225 million a year.

Chartered Accountants Australia New Zealand (CA ANZ) tax lead for New Zealand, John Cuthbertson, believes this consistency could've been achieved by requiring all fund managers to pay a lower GST rate of 1.5 per cent.

Speaking to the Herald's Continuous Disclosure podcast, he said this would've allayed some concerns around a greater tax burden for fund managers being passed on to investors – including KiwiSaver members.

Inland Revenue estimated this change would've cost fund managers an extra $135m a year.

"This whole thing has blown up, really, because the rate it [the Government] picked was at the highest possible end," Cuthbertson said.

Inland Revenue said making fund management fees completely GST exempt would've saved fund managers (or cost the Crown) $22m a year.

Cuthbertson said CA ANZ engaged with Inland Revenue on the proposal, which was quashed within 24 hours last week, further to a consultation it did in February 2020.

The Government is soon due to introduce a new bill to Parliament to address the other tax-related matters included in the Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill, minus the GST/investment fund fee change.

Cuthbertson was particularly supportive of one of these proposed changes.

The tweak prevents GST-registered small business owners, who work out of a home registered under their name, doing a small amount of admin and claiming very little GST against that home, from being lumped with a large GST bill when they came to sell their home.

Separately, Cuthbertson said he wanted Inland Revenue to prioritise simplifying the fringe benefit tax (FBT) regime – a matter it is consulting on.

Employers must pay FBT on certain non-monetary benefits they provide their employees; the aim being to prevent employers from sidestepping paying salaries and wages subject to tax.

The problem, in Cuthbertson's view, is that too many benefits are being subject to FBT. These include flowers given to a bereaved employee, as well as health and wellbeing initiatives.

He said the FBT regime needs to be fit for purpose. With the labour market tight, he believed the provision of health and wellbeing schemes for employees was a "normal business cost".

"Employers are trying to keep their hands on as many employees as they can – keep them as healthy as possible so the ones who are turning up for work can work," he said.

Continuous Disclosure is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday and it is brought to you with support from Fisher Funds.

You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts or on iHeartRadio.