GST and sale of property by SMSF originally intended as rental accommodation
A client recently called and asked us for advice regarding GST implication in the sale of property by their self-managed superannuation fund (SMSF).
SMSF in regards to renting
The SMSF is not registered for GST. The fund purchased some GST-free residential land after 1 July 2000. It was intended that a house be built on the land and rented out. The fund’s intention was to keep the house for the long term.
After construction was completed, but prior to rental, the managing property agent informed our client that he had several buyers interested in the property. Due to the high return promised the client is considering selling.
At the time of purchase and construction, the fund was not required to be registered. Further, given the intention at the time to rent the house, no input tax credits were claimed during construction. Our client is of the opinion that under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), if a taxpayer is not required to be registered then the sale of new residential premises is not subject to GST.
Unfortunately, we had to advise our client that the sale of the new residential premises is a taxable supply and therefore subject to GST regardless of the original intention to keep the property for long-term rental.
Major activities within a superannuation fund relate to maximising returns on investments and ensuring that the best mix of income producing or appreciating assets are held at appropriate times. The disposal of the house is considered to be one such activity, that is, the trading or selling of one class of asset in preference to others to realise gains is normal behaviour for a superannuation fund. This constitutes to an enterprise for GST purposes. Consequently, the fund will be required to register for GST.
On a positive note, the superannuation fund will be able to use the margin scheme in working out the amount of GST on the sale. Furthermore, as input tax credits were not claimed during construction (as the fund was not registered) and the fund now is required to register, its registration can be backdated in order to claim input tax credits on building costs.
The upshot of this is that GST can be a very complicated area and it is advisable to get expert advice prior to engaging in a transaction.
Here at the Quinn Group we can assist with any questions regarding GST implications within SMFS. Contact us on (02) 9223 9166 to discuss with one of our team of tax accountants or tax lawyers or fill out an online enquiry.