SMSF trustees must regularly review the goods and services tax (GST) registration status of their fund to ensure compliance with essential obligations and avoid forfeiting eligibility for claiming tax credits, an SMSF technical expert has warned.
Heffron head of education and content Lyn Formica noted she had encountered incidences where trustees were uncertain whether an SMSF needed to be registered for GST and reiterated funds are obliged to register once they meet a specific threshold.
“When we’re looking at GST turnover, we’re actually looking at current turnover and projected turnover. So our current turnover is going to be the 12-month period that ends at the end of the current month,” Formica told attendees of a recent Heffron webinar.
“The projected turnover will be the period from 1 November 2023 through to 31 October 2024. If either of those are $75,000 or more, then the SMSF must register. They don’t have a choice and they’ll need to register within 21 days of their turnover meeting that $75,000 threshold.
“Then they’re going to have to charge GST on their taxable supplies and make payment of that GST across to the tax office. If they’re registered for GST, it means that they can claim any eligible input tax credits and get a refund back from the ATO.”
She noted while the majority of transactions conducted by an SMSF are generally exempt from GST for tax purposes as they typically fall under input-taxed sales, trustees should be aware of the transactions that do contribute to a fund’s GST turnover.
“In an SMSF type of context, the things that are going to be included in GST turnover are going to be lease payments if the fund owns commercial premises. We would also include in GST turnover any lease or hire payments on certain non-real property that might be owned by the SMSF,” she said.
“We might have some farming equipment or other sorts of business equipment, maybe collectibles that are being leased to somebody, income from taxi licences, those sorts of things.
“Premiums charged to members for income protection insurance also comes through as part of our GST turnover, as well as what I’ve called foreign interest dividend distributions. Direct interests by the fund in foreign equities, foreign trusts and non-resident entities are all included in our GST turnover.”
She further clarified Australian interest dividend distributions, rent from residential property owned by the fund, premiums for death and total permanent disability insurance and proceeds from the sale of fund assets, including commercial premises, are not typically considered part of a fund’s GST turnover and would not require a fund to register for GST purposes.