An SMSF is only required to register for GST if its annual turnover exceeds $75,000.
Only income received from commercial or business properties counts towards this $75,000 turnover threshold. Rent earned from a residential property is not relevant for GST purposes.
Therefore, if a commercial property that is held within an SMSF generates more than $75,000 in income then the SMSF must register for GST. Note that this is gross revenue, not net income after expenses.
If an SMSF does not hold a commercial property that earns over $75,000 in rent per annum then GST registration is not required. However, the trustees may voluntarily register the fund for GST. Any trustee contemplating this should consider the increased costs and reporting requirements required with the registration. These factors may outweigh the potential benefit of claiming back GST credits.
While many expenses incurred by an SMSF include GST, the law permits only a reduced amount of the GST component to be claimed back by the SMSF. In some cases, none of the GST included in an expense paid by an SMSF can be claimed.
Expenses that include GST, but which no GST can be claimed/refunded to the SMSF include:
- Accounting fees for the preparation of income tax returns & BAS
- Audit Fees
- Legal Fees
- Expenses relating to a residential property
Expenses that include GST which an SMSF can only claim 75% of the GST component:
- Investment Management fees
- Actuarial Fees
If an SMSF is registered for GST and owns a commercial property then GST must be charged on the rent and remitted to the ATO. The GST component of any expense relating to the commercial property can be claimed by the SMSF.
In summary, unless required to do so as the result of owning a commercial property with rental income above $75,000 per annum, there is little benefit in an SMSF registering for GST. At best, it may be able to make a reduced claim, depending on the expense. When weighed up against the increased costs and reporting obligations of registering for GST it soon becomes clear that voluntary registration provides little to no benefit to SMSF members.
Kimberlee Brown is the SMSF Director at H&R Block.
The content above has been prepared by H&R Block Ltd (“H&R Block”), ABN 89064268 800.The above information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice. Although every effort has been made to verify the accuracy of the information contained above, H&R Block, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained on this website or any loss or damage suffered by any person directly or indirectly through relying on this information. H&R Block Ltd ABN 89 064 268 800 is a Corporate Authorised Representative No. 001246230 of Accountable Financial Solutions Pty Ltd ABN 36 146 520 390 AFSL No. 409424