SMSFs must pay GST for enterprise activity


SMSFs that engage in taxable enterprises will have to pay GST even if they are not registered for it and have made arrangements to move assets into the fund.

SMSFs engaged in or linked to property developments are unlikely to be able to side-step the requirement to pay goods and services tax (GST) even if they have voluntarily cancelled their GST registration.

Smarter SMSF chief executive Aaron Dunn said a recent case heard in the Administrative Appeals Tribunal (AAT) found the GST liabilities of a complying superannuation fund, including an SMSF, turned on the requirements for registration as an enterprise contained in paragraph 9-20(1)(DA) of the GST Act.

Dunn said the case – Collins & Anor ATF The Collins Retirement Fund v Commissioner of Taxation – found activities, or a series of activities, conducted by an SMSF will constitute an enterprise under the GST law and there was no need for the activities to be in the form of a business, and so most SMSFs will be carrying on an enterprise for the purposes of the GST law.

Speaking during a recent webinar, he said the case focused on whether land purchased in 1986 and transferred in specie to an SMSF in 2014 while drawing passive income from a third-party business operating on the land, which was subsequently redeveloped into 11 lots and 10 of those lots sold for $1 million, was subject to GST.

“Since the land had moved into passive income, there was a requirement initially for the individuals to be registered for GST,” he said.

“At the point in time [they decided to develop the land] they cancelled the GST registration and started the process of obtaining consents and then started construction.

“The issue here is that we know that it’s a requirement that a taxpayer is to be registered for GST if they carry on an enterprise and that’s dictated by if the current turnover is more than $75,000 or the projected turnover is expected to be greater than $75,000.”

He said the SMSF trustee, however, self-assessed that the sale of the lots was not subject to GST because even though the fund had carried on an enterprise, and its current GST turnover was more than $75,000, exclusions under the GST Act applied related to the transfer of ownership of the land to the fund and the sales were ceasing or reducing the size of the enterprise.

The AAT rejected the exclusions applied and found in the commissioner’s favour that the SMSF’s activities were an enterprise and GST would apply, he said.

“The lesson here is voluntarily deregistering for GST does not mean that you cease to be required to be registered for GST,” he said, adding the ATO has four years to scrutinise any transaction and assert a fund be required to be registered for GST.

“In the context of the GST, it is difficult for taxpayers who conduct land development enterprises to assert that those land sales can be made solely as a consequence of ceasing to carry on an enterprise or in reducing its enterprise as the case may have been here and that the activities or a series of activities conducted by an SMSF does constitute an enterprise under GST law.

“Just because you might go through a process of getting those assets into the fund, wanting to claim maybe the GST on an acquisition and so forth, the reality is going forward you may need to continue with that GST registration because of the way in which the GST laws apply to SMSFs in these sort of arrangements.”

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