Under FOI, Treasury has released a policy document indicating that the Government does not support the extension of the GST reduced input tax credit (RITC) scheme for “credit union services” to cover mutual building societies and mutual banks. This follows calls by the Customer Owned Banking Association (COBA) for the RITC scheme, currently available to credit unions (including those rebranded as banks), to be extended to mutual building societies and mutual banks (that are former mutual building societies).
The policy document, states that the Government does not support extending the RITC scheme as the policy rational of “levelling the playing field” between credit unions and other financial institutions “may no longer be relevant”. According to the Government, the RITC scheme was originally intended to recognise that credit unions were, at the time, typically small entities that needed to outsource more services than other financial institutions, and thus should be entitled to an RITC in respect of those services. However, the Government considers that the policy rational for maintaining the scheme becomes progressively weaker as the industry consolidates and these entities become larger and the need to outsource is reduced.
The Government noted that financial supplies (eg loans and bank accounts) are input taxed, meaning that no GST is charged on the final supply, but neither can the supplier claim input tax credits in respect of the acquisitions made to produce those supplies.
The RITC scheme allows credit unions (including those that have rebranded as banks) to claim a refund of 75% of the GST paid on acquisitions that relate to their financial supplies. Examples of such acquisitions include loans services, transaction banking, cash management services, insurance services and debt collection services.