The 10% Goods and Services Tax (GST) is generally included in the price on most sales in Australia. However, not all goods and services are required to include GST and not all entities, such as SMSFs, are required to be registered for GST.

When is an SMSF required to be registered for GST?

SMSFs are required to register for GST if their actual or projected annual GST turnover exceeds $75,000. The majority of SMSFs only receive income from dividends, distributions, interest and residential rent which are input-taxed sales and so, are not subject to GST. For this reason, most SMSFs annual GST turnover won’t exceed $75,000. However, SMSFs can still voluntarily register.

Unlike most SMSF income, commercial rental income is subject to GST and forms part of the $75,000 annual turnover.

Examples of common SMSF expenses and the percentage that can be claimed on GST, is detailed below:

Nil claimable

• Tax return and activity statement preparation fees
• Audit fees

75% claimable

• Actuarial fees
• Administration fees
• Brokerage
• Investment management fees

100% claimable                            

• Commercial property expenses

GST implications for SMSFs purchasing commercial property

When a vendor is registered for GST, the GST is added to the purchase price of the property however, the SMSF won’t be able to claim this unless it is also registered. If the vendor isn’t registered for GST, then GST on the property purchase isn’t applicable.

Purchasing a property using the GST going concern exemption allows the SMSF to avoid paying GST on top of the purchase price as it is considered a GST-free sale. If this exemption doesn’t apply, GST must be paid on the adjusted property purchase price on which stamp duty is also paid.

To be able to use this exemption, the property must be tenanted and the tenant will continue to rent the property after the sale. The following must also be satisfied:

• Payment or consideration is made;
• The buyer and seller have agreed in writing that the sale is a going concern; and
• The vendor supplies all things necessary for the continued operation of the business and carries on the business until the day of sale.

GST on residential property developments

Generally, SMSFs cannot claim GST credits on residential property transactions and is not required to add GST on the sale of the property. There is one exemption though for new residential property.

A property is considered to be new residential property if any of the following apply:

• The property has not been sold as a residential property previously;
• It has been created through substantial renovations; or
• New buildings replace demolished buildings on the same land.

The benefit of this is that GST credits can be claimed on most construction costs however, the SMSF is also liable for GST on the sale of the property.

Is it possible for SMSFs to cancel their GST registration?

If the SMSF’s annual turnover is under the annual threshold of $75,000, it can be deregistered for GST. However, an SMSF may be required to return its previously claimed GST over an adjustment period of up to 10 years, this is depending on the value of assets purchased which the fund has claimed GST.

If your clients are planning to purchase commercial property using their SMSF and have concerns about potential GST obligations, please do not hesitate to contact Mark or Alex.

If you have any other questions about managing your client accounts, please speak with Mark Phillips or Alex Polorotoff on 1300 364 597, via email at mark.phillips@interprac.com.au or alex.polorotoff@smsfengine.com.au.