Item 32, which was introduced with effect from 1 July 2012, effected the level of GST recovery available to various managed investment schemes (MIS), approved deposit funds and superannuation trust entities for expenses incurred by those entities.
In the draft Determination, the Commissioner confirms that in his view item 32 applies to certain single Responsible Entity (RE) fee arrangements such that the relevant fund is only entitled to 55 percent Reduced Input Tax Credit (RITC) recovery for at least part of the fee. The draft provides examples of 'fair and reasonable' methods of apportionment. The draft describes two alternative approaches to apportioning single fees to determine the extent to which only 55 percent RITCs are available – either based on a 'deductive benchmarking methodology' or by benchmarking with reference to the value of an 'RE for hire' service.
Whilst the draft Determination has limited application to funds fitting the facts described in the draft, it is a precursor to an Addendum to GSTR 2004/1 due for release in July and which is expected to have wider application, and therefore provides an insight into the ATO's position on the application of item 32 to all affected entities.
It is imperative that all recognised trust schemes review the GST recovery rates applied, to ensure that a fair and reasonable basis has been adopted.