Advice fees paid by clients from their Netwealth account are subject to GST, but the client benefits from a Reduced Input Tax Credit (RITC). The RITC is automatically calculated and applied when paying or rebating ongoing and one-off advice fees.
From 1 July 2024, the ATO has changed the qualification requirements to RITC entitlements. Netwealth will no longer be able to claim RITC on behalf of our clients and this will impact fees charged on or after 1 June 2024.
Calculating the effect of RITC on fees deducted after 29 November 2018 to 1 July 2024
RITC rates changed as of 29 November 2018. The below calculation is based on the current RITC rate of 75%.
When an adviser instructs us to pay advice fees from a client’s account, we will pay the amount instructed to the adviser’s AFSL. This includes GST. The amount deducted from the client’s account will be less than the amount paid to the adviser due to the impact of the RITC.
To calculate how much will be paid by a client, use the following formula:
- Total advice fee ÷ 1.1 x 1.025
- If the adviser instructs us to pay $100, the amount deducted from the client’s account is $100 ÷ 1.1 x 1.025 = $93.18
To calculate the total advice fee paid to the adviser, use the following formula:
- Net advice fee paid by client x 1.1 ÷ 1.025
- If the client pays $93.18, the amount paid to the adviser is $93.18 x 1.1 ÷ 1.025 = $100 total advice fee
Calculating the effect of RITC on fees deducted before 29 November 2018 to 1 July 2024
RITC rates changed as of 29 November 2018. The below calculation is based on the previous RITC rate of 55%.
To calculate how much would have been paid by the client prior to 29 November 2018, use the following formula:
- Total advice fee ÷ 1.1 x 1.045
- If the adviser instructs us to pay $100, the amount deducted from the client's account is $100 ÷ 1.1 x 1.045 = $95.00 net advice fee paid by client
To calculate the total advice fee paid to the adviser prior to 29 November 2018, use the following formula:
- Net advice fee paid by client x 1.1 ÷ 1.045
- If the client pays $93.18, the amount paid to the adviser is $95.00 x 1.1 ÷ 1.045 = $100 total advice fee
For more details on the RITC, you can visit the Australian Taxation Office’s (ATO) dedicated page.