Tax and fees

Before you can compare products that you might invest your money in, you need to know how the fees you pay will be treated for tax purposes.

It’s important that you find out if the fees are before or after tax. A common way providers create a tax advantage for investors or savers is by making the fees you pay tax deductible. Essentially, any fees you pay are deducted from the return before you pay tax, so that you pay less tax on the return overall. If the fees are before tax, find out if they are deductible. If not, you could pay proportionally more tax.

Tax on investment returns

There are three ways you might pay tax, either directly or indirectly, on the investment returns earned by your provider:

1. The provider may be the ‘final’ taxpayer, in which case any returns you receive are after tax.
2. You may receive the gross return and have to put that income in your own tax return.
3. Companies you buy shares in can pay tax on their income and when they pay you a dividend, you may get an imputation credit. When you include the dividend in your tax return, you can claim the imputation credit against your tax. This also happens with your returns if you invest in a unit trust as they are taxed in the same way as companies.

GST

Find out whether you must also pay GST on your fees. Generally, GST is not payable on financial services (like investment management or record keeping associated with the product). However, a proportion of the fee (say 10%) may be subject to GST because it relates to a service, such as advice, that does not fit within financial services. In some cases, GST applies to the full investment fee.