Property, Tax

Asset sales need GST awareness

SMSF assets GST

SMSF trustees must be wary of the GST implications that can arise should they dispose of an asset such as property in a particular manner.

A recent Administrative Appeals Tribunal (AAT) decision has served as a reminder to trustees that they must take into account any possible goods and services tax (GST) implications when selling property assets held in an SMSF, a technical specialist has said.

In the Collins Retirement Fund case, an SMSF subdivided two plots of land into 11 individual lots, selling 10 of them for property development purposes and retaining one in the superannuation fund. The lots were sold for about $1 million each.

Upon the sale of the 11 lots of land, the SMSF was issued with GST assessments for the transaction as it was considered the fund was required by law to register for GST as its GST turnover was greater than $75,000.

The fund trustees argued the transaction represented the transfer of capital assets under section 188.5 of the GST Act and as such was exempt from having GST applied to it.

However, the AAT disagreed and upheld the ATO’s action to issue the SMSF with a GST assessment, citing several mitigating factors that rendered the transaction more intricate than a normal transfer of capital assets and gave evidence to the trustees’ intention at the time of sale.

In particular, the tribunal found the preparation work undertaken before the property sale, such as having the development application modified twice, obtaining multiple costly expert reports with regard to engineering, soil testing, and environmental and vegetation management, made this more than an ordinary capital asset transfer.

Further, the fact the lots in aggregate sold for three times the amount of this preparation spend was another issue.

“[As such] when the lots were sold it was found the intention of the seller was to subdivide the land and to sell it at a profit,” Accurium head of education Mark Ellem noted.

“So [for SMSFs that are using an] enterprising way [to] realise an existing asset like property, rather than just putting it on the market and selling it, developing it somewhat, they need to keep in mind there is a likely application of GST because the sale of those [assets] are likely to be included in the GST turnover test.”

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