SMSFs in the main do not need to worry about the goods and services tax. Mark Ellem details the situation when it does become relevant for trustees.

Goods and services tax (GST) is not the headline issue for most SMSFs. Financial supplies and concessions mean many funds have little direct GST exposure, but where this tax does bite, the compliance complexity can be material. Trustees and advisers need to think beyond whether GST is payable on a single transaction, for example, they must test registration thresholds, understand reduced input tax credits (RITC), appreciate special rules (going concern, margin scheme, GST at settlement) and manage adjustment risks when deregistering.

The basic legal position

• Financial supplies are input taxed: many SMSF activities, such as member interests, contributions, rollovers and most securities trading, are financial supplies. These are input taxed, so the fund does not charge GST and generally cannot claim GST credits embedded in costs that relate to making those supplies.
• A superannuation fund is deemed to carry on an enterprise: The effect of sub-section 9-20(1)(da) of the GST Act is that a complying super fund is treated as carrying on an enterprise. That means the GST liabilities of a complying super fund turn on whether it is required to be registered for GST purposes. In effect, the turnover threshold is the test to determine if an SMSF may have GST liabilities.

Practically the routine activity of an SMSF will often be GST neutral. The key exposure points are commercial property (rent and sales), development activity, certain service fees and transactions involving associates or members, for example, in-specie distributions.

When must an SMSF register for GST?

• Turnover test: registration is required if the fund’s current or projected GST turnover reaches $75,000 (GST exclusive). Current turnover is that of the past 12 months; projected turnover is that of the coming 12 months. Trustees should reassess this monthly.
• What counts: taxable supplies count; input-taxed supplies (financial supplies and residential rents) generally do not. However, proceeds from sales that look like trading or development proceeds often will be included (see the Collins Retirement Fund case below).

It is worth noting funds holding commercial property, that is, not residential property for GST purposes, are most at risk of exceeding the GST threshold.

Financial acquisitions threshold

The financial acquisitions threshold (FAT) is designed to allow entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or GST-free supplies, to claim full input tax credits (ITC) relating to those financial acquisitions. Two limbs are tested over a 12-month rolling window:

• first limb: ITCs attributable to financial acquisitions exceed $150,000, or
• second limb: ITCs attributable to financial acquisitions exceed 10 per cent of total ITCs the entity could claim.

If either limb is met, the fund is treated as exceeding the FAT and cannot claim full ITCs for financial acquisitions. In that case, some purchases may attract the 75 per cent RITC where the item qualifies. Generally an SMSF will be caught by the second limb.

Example:

An SMSF registered for GST has the following acquisitions:

• Financial acquisitions: o brokerage on shares – $660 (GST $60) o investment portfolio management fees – $1320 (GST $120) o fund admin costs – $990 (GST $90)
• No input tax credit (ITC) entitlement: o accounting fees for prep annual return – $1650 (GST $150) o audit fees – $770 (GST $70)
• ITC entitlement: o repairs to commercial premises – $17,652 (GST $1604) To be able to claim all the GST embedded in the financial acquisitions, the fund must not exceed either of the two limbs of the FAT.
• First limb: ITCs relating to financial acquisitions do not exceed $150,000 (only $270).
• Second limb: ITCs in relation to financial acquisitions do not exceed 10 per cent of total GST input credits that could be claimed: o [$270/($270 + $1604)] × 100% = 270 ÷ 1874 = 14.41% > 10%

Because 14.41 per cent is greater than 10 per cent, the FAT is exceeded and full input credits for financial acquisitions are unavailable and only the specified reduced ITCs may be claimed.

RITCs

RITCs give a 75 per cent credit on certain acquisitions used to make financial supplies, as outlined in the table GST Regulation 70.5.02 details. Common RITC categories relevant to SMSFs include:

• brokerage and trade execution (item 9 in the regulations): brokerage on share trades is typically eligible for the 75 per cent RITC,
• investment portfolio management (item 23): services that actually manage a fund’s investment portfolio (not merely advice) can be RITC eligible, and
• certain administrative functions (item 24): record-keeping, contribution processing and compliance with industry regulatory requirements (note: taxation and audit services are excluded).

Reference can also be made to the ATO’s GST Ruling (GSTR) 2004/1 on RITCs.

It is important to recognise not all adviser fees are RITC eligible. Pure financial advice where the trustee implements decisions themselves does not amount to ‘management’ and therefore is typically not an RITC acquisition. Furthermore, while item 24 covers administrative functions, including compliance with industry regulatory requirements, it excludes compliance with such requirements that are taxation and auditing services. This would exclude costs incurred for preparation of tax returns or business activity statements (BAS) for the SMSF.

Another misunderstood financial acquisition is actuarial fees. I’ve often seen a 75 per cent RITC claimed in respect of actuarial fees with reference to Example 71 in GSTR 2004/1. However, this example refers to a super fund that requires an actuarial certification under Superannuation Industry (Supervision) (SIS) rules, for example, a solvency certificate. Most SMSFs obtain an actuarial certificate in respect to claiming exempt current pension income (ECPI). This is due to a requirement under the Income Tax Assessment Act 1997, specifically section 295.390. This is a taxation requirement and therefore not eligible for an RITC.

Collins Retirement

Fund case The Administrative Appeals Tribunal in Ian Mark Collins ATF Collins Retirement Fund v Commissioner [2022] AATA 628 emphasised the character of a supply is assessed at the time of supply. Where an SMSF undertakes substantive development activity, such as planning, development application (DA) approvals, contractor engagement, subdivision works and active steps to sell, proceeds from the sale of subdivided lots are properly characterised as supplies in the course of an enterprise and are included in projected GST turnover.

Key takeaways from the Collins case:

• GST Act section 188-25 exclusions are narrow: the statutory carve-outs allowing capital realisations to be excluded do not extend to sales that are the ordinary commercial outcome of development activity.
• Practical approach: if development steps have commenced, prudently include projected sale proceeds in the GST turnover test and consider registration in advance so the fund can lawfully claim input credits on development costs.

Reference can also be made to ATO Private Binding Ruling Authorisation Number: 1052048176643, 31 October 2022. It reaches the same practical conclusion as that in the Collins case. That is, on the facts the trustee of the complying superannuation fund was taken to be carrying on an enterprise (paragraph 9 20(1)(da)), the proposed sale of the subdivided lots constituted taxable supplies and the projected sale proceeds meant the fund would be required to register for GST because its turnover would exceed the $75,000 threshold. The ruling emphasises the importance of the factual matrix: a pre-existing DA, a decision to proceed with subdivision after market feedback, engagement of a project manager and real estate agent, and active steps to construct and market the lots. It also confirms that engaging third parties to perform development and sales functions does not dilute the character of the activity as an enterprise.

Consistent with the AAT’s reasoning in the Collins case and the ATO’s decision impact statement, the private ruling reinforces that the character of the supply is assessed at the time the supply is made (or likely to be made). Where contemporaneous evidence demonstrates substantive development activity, sale proceeds from subdivided vacant land are properly included in projected GST turnover and treated as taxable supplies rather than mere realisations of a capital asset.

Practitioners should therefore treat ATO private advice of this kind as further confirmation development-led land sales carried out by an SMSF are likely to trigger registration and GST consequences unless the factual circumstances clearly point the other way.

Commercial v residential premises – SIS v GST

There can be a misunderstanding of when a property may be business real property (BRP) as per the definition in sub-section 66(5) of the SIS Act and when it is commercial property or, more correctly, not input-taxed residential premises for GST purposes.

From a SIS Act perspective, the business use test is applied and can result in property that may look like a residential premises, satisfying the definition of BRP, for example, a residential property used as a doctor’s surgery or accountant’s office or financial adviser’s office.

From a GST perspective, ‘residential premises’ are input taxed and defined in section 195.1 of the GST Act to be: Land or a building that:

1. is occupied as a residence or for residential accommodation, or
2. is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home.

The concept of residential premises is further explored in GSTR 2012/5, with paragraph 10 stating the following: “The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).”

That is, the use of the property does not determine whether the property is residential premises for GST purposes. Where the property is intended and capable of being used for residential purposes, it will be considered residential premises. Further reference can be made to examples 8 and 9 in the ruling in relation to the extent of alternations made to the premises.

While the property may be used entirely for business purposes and satisfy the BRP definition for SIS purposes, the second part of the definition of residential premises also needs to be considered. That is, whether it is intended to be or capable of being occupied as a residence. If so, then it is likely to be treated as residential premises for GST purposes, meaning any sale of the property would be input taxed. Further, it would also mean the rental income received is also input taxed.

Special rules

• Going concern: a supply of a going concern can be GST free if specific requirements are met (business carried on up to day of supply, recipient registered or required to be registered, agreement in writing and the supply includes everything necessary for continued operation). In practice for an SMSF this can matter where a fully tenanted commercial property is sold to an entity, other than the tenant, that will continue the leasing enterprise.
• Margin scheme: where eligible, the margin scheme taxes the difference (margin) rather than the full sale price; it is commonly used where the vendor did not claim GST on acquisition of the original property but has claimed GST on development costs.
• GST at settlement (withholding): purchasers of new residential premises or potential residential land generally must withhold the GST component at settlement and remit it to the ATO. This obligation does not require the purchaser to be registered for GST.

Cancelling GST registration

Cancellation of GST registration may trigger an increasing adjustment where the entity holds assets for which it has claimed ITCs. The broad effect of the rule is to reverse, either fully or partly, the ITCs previously claimed. An adjustment is not required if the adjustment periods for the asset have ended. The number of adjustment periods depends on the asset cost:

The first adjustment period is the first June tax period that is at least 12 months after the tax period in which the asset was acquired. GST adjustment formula: GST adjustment = (applicable value x actual application) ÷ 11.

• Applicable value: lesser of market value (including GST) immediately before cancellation and purchase price (including GST).
• Actual application: proportion of asset used for business (taxable) supplies between acquisition and cancellation.

Example:

An SMSF registered for GST purchased a commercial property for $438,900 and claimed GST of $39,900 in August 2020. As the SMSF’s GST turnover was less than $75,000, it cancelled its GST registration in September 2025 when the property had a market value of $643,500.

There are five adjustment periods with the first ending 30 June 2022 and the fifth on 30 June 2026. As GST registration has been cancelled prior to the expiration of the adjustment periods, there is an increasing adjustment, calculated as follows: ($438,900 × 1.00) ÷ 11 = $39,900.

The SMSF would have an increasing adjustment of $39,900 seeing it effectively being obliged to repay the ITCs. Important planning issues arise where trustees register for GST temporarily to secure input credits, for example, when buying commercial premises, but then seek early cancellation.

It should be noted if the initial acquisition was GST free because the transaction was treated as a going concern, there is no ITC to reverse and therefore no adjustment on cancellation.

Other transactional issues

• Outgoings and recoveries: recovery of outgoings from tenants is a taxable supply. Lease documentation should clearly record the parties’ intentions about recovery and how GST on outgoings is calculated. This avoids disputes and supports GST accounting.
• Limited recourse borrowing arrangements: determine which entity is properly expected to register for GST, the SMSF or the bare trust. Refer to GSTR 2008/3, which notes at paragraph 29: “A bare trust arrangement does not in itself create the relationship of agency between the trustee and beneficiary. An entity does not, merely by acting in its capacity as bare trustee, contract as agent for the beneficiary of the trust but as principal. Accordingly, transactions involving a bare trust, without more, need to be analysed in a way that does not rely on a finding of agency.” Consideration should be given to an agency agreement.
• In-specie benefit payments: a transfer of a commercial property to a member may be treated as a taxable supply for consideration equal to market value if the recipient is not registered or does not acquire for a creditable purpose.
• Timing mismatches: GST (on the cash basis) and income tax (often on an incurred basis) can produce timing differences and thus advisers should flag these for trustee cash-flow planning and BAS lodgement.
• CGT date v GST date: Where a sale of an asset is subject to GST, for example, the sale of a developed block of land, consideration needs to be given to the timing of the CGT event (date of contract) versus the timing of the GST supply, date of supply (generally settlement). Where these two events straddle two income years, it could lead to a timing mismatch, particularly when considering the timing of commencement of retirement-phase pensions.

Conclusion

GST is often a second order issue for many SMSFs, but when it arises, particularly with commercial property, property development or large service acquisitions, its financial and administrative consequences can be material. The Collins decision reinforces the need to assess the factual character of sales at the time they occur and to document development intentions and activity. Trustees and their advisers should adopt a disciplined, evidence-based approach to turnover testing, RITC claims and registration timing, and seek technical advice for borderline or complex fact patterns