Wraps meet the GST challenge

Wraps meet GST challenge

It has been said that wrap accounts will become the ugly ducklings of the industry once they are subject to GST. BT Portfolio Services’ Bill Wawn argues that wraps will swan home.

Wraps meet GST challenge

It has been said that wrap accounts will become the ugly ducklings of the industry once they are subject to GST. BT Portfolio Services’ Bill Wawn argues that wraps will swan home.

The financial services industry will undergo a steep GST learning curve over the next few months. In this climate, the flow through e-business processing benefits of the wrap structure will be recognised as a key value-add in meeting the administrative challenges of GST.

The wrap’s success stems from its ability to reduce the administrative burden and maximise the adviser’s value proposition to clients. Operating on an e-business technology platform, the wrap has marked a major change in the way advisers do business. Through badged wrap services, dealer groups are enjoying the branding, control and ownership advantages of a wrap. Meanwhile advisers and clients are benefiting from increasing ranges of investment options and on-line transaction facilities and consolidated reporting.

That’s one of the reasons why wraps will continue to flourish in the new GST environment. Wraps will reduce the additional administrative burdens placed on financial advisers under GST as they become responsible for collection and payment of the tax for their business.

As a comprehensive portfolio administration service, wraps will supply advisers with all the information they require to handle the GST in wrap accounts. BT Portfolio Services will also provide monthly tax invoices and guides to help advisers complete the required Business Activity Statements.

Like many other financial services, wraps will feel the impact of GST. So will insurance, broking and accounting services. Under GST regulations, fees associated with wraps are regarded as taxable supplies and will be subject to GST. This will mean prices will rise, however they will not rise by the full 10 per cent. GST or no GST, wraps will remain competitive.

Some investment clients, such as DIY super funds, may be eligible to claim reduced input tax credits from the ATO for the administration costs associated with wraps. Wraps will also provide these clients with tax invoices and guides to assist with the preparation of their Business Activity Statements.

From an investor’s perspective there are other drawcards for wrap accounts in the new tax environment; especially for those who want to invest in direct shares. Under the wrap structure, direct equities are held in the name of the investor. This means that the investor is both the legal and beneficial owner of their direct equity holdings. Under the Ralph Reform changes it is more beneficial from a capital gains tax (CGT) point of view to hold direct equities in an individual’s name rather than through a master trust structure.

If held in an individual’s name, 50 per cent of the capital gain is used to calculate the CGT liability as opposed to 75 per cent of the gain under a master trust. Wrap investors will be able to take advantage of this benefit for the next 18 months.

BT Portfolio Services is ensuring that our wrap dealer groups and advisers are ready for GST. Presentations to dealer groups have commenced to discuss the impact of GST. This will be followed by an adviser education campaign, including information kits and training presentations.

Initial feedback shows our clients are confident that GST will not effect the competitiveness of wrap accounts, with its administrative benefits being stronger than ever.

* Bill Wawn is Head of Wrap Business Group at BT Portfolio Services