Is your SMSF Registered for GST? Here’s Why It Probably Should Be

Very few SMSFs in Australia are registered for GST, but in some cases, the extra admin for those that aren’t required to register might be worthwhile from a tax perspective. It comes down to ability of SMSFs to claim back a level of GST it has paid depending on the type of investments and services used.

Could you be missing out on a return you might be entitled to?

It’s a question to consider as you assess the size of your SMSF and your investments, your current income, as well as the costs of registering for GST, such as an annual registration fee or the additional administration required.

The amount you might be able to claim varies too, based on the investments you hold and the services you pay for.

Here are some of the starting basics to understand – but make sure you seek out expert advice for the finer details.

Required or Optional: Registering for GST

You need to register your SMSF for GST if your GST turnover is $75,000 or more. It’s not simply your annual income – GST turnover is more specific.

The Australian Taxation Office (ATO) defines GST Turnover as:

‘Generally, the total of the sales you have made (or are likely to make in a 12-month period.’

While this may be simple when it comes to most businesses, SMSFs are a more unique structure.

For example, GST turnover in an SMSF doesn’t include contributions, interest and dividends from domestic investments or rent from residential properties (also referred to as input-taxed financial supplies). For many SMSFs, this is where their income lies and why they aren’t required to register.

GST turnover does, however, include items such as income from leasing out equipment or commercial properties, and can cover some income on foreign investments.

As basic example though, say your SMSF owns a warehouse that is leased out to a business, the rent from that warehouse would count as part of the GST turnover. The SMSF would need to register for GST and charge the tenant GST (and this is a legal requirement if the total GST turnover including the commercial property is $75,000 or more).

By contrast, if your SMSF owns a 3-bedroom apartment that you have rented to a family to live in, that rental income is not counted as part of GST turnover.

You can find the finer details on the Australian Taxation Office website.

If your SMSF earns under $75,000 in GST turnover, you can still register for GST but this would be a voluntary decision. It’s not black and white – there can be some value in registering for GST for some SMSFs, though for others, the additional accounting costs might take up any financial benefit.

Claiming Back Your GST

The value in voluntarily registering for GST is the ability to claim GST credits – but what does this actually mean?

This is about the GST you pay on purchases relating to the investments or assets in your SMSF.

Consider the financial advice you might seek, or administration costs such as accounting services for SMSF compliance and record maintenance (tax returns is an exception to this). If you own a commercial property or equipment, you could claim the GST on repairs made by tradespeople to that property (remember this doesn’t apply to residential properties).

Don’t forget that SMSFs are already entitled to claim tax deductions on services like investment management fees. The GST claim is a different type of deduction.

Rules vary on how much GST can be claimed back too – you don’t necessarily receive the full amount back.

For example, H&R Block explains that you can only claim 75% of the GST the SMSF has paid for investment management fees, actuarial fees and brokerage fees, while according to Heffron Consulting, you might be able to claim the full GST back on services for a commercial property.

There is a two-part financial acquisitions test for SMSFs registered for GST to determine whether the SMSF is entitled to claim GST credits – meeting either test allows the SMSF to make a claim.

1. If the total GST credits on the financial acquisitions for the SMSF exceed $150,000 over a 12-month period.

2. The total GST credits exceed 10% of the total amount of GST credits the SMSF could claim for all purchases including financial acquisitions. Please note the total used for this test doesn’t consider partial or full, it’s effectively the full GST paid on all items that the SMSF is entitled to claim on.

Here’s how it might work in practise for an SMSF registered for GST summarised from an ATO example:

Hazel Super Fund makes the following purchases including GST:

Total GST credits = $1,465

Is GST Registration Worthwhile or Not?

Before taking the step to register for GST, there are a few things to consider.

1) Costs

You need to pay for GST registration – you can’t claim the GST back for the GST registration either.

Registering for GST may create additional administration for you too.

For example, you may need to amend an existing lease on a commercial property to include charges for GST.

There are also additional reporting requirements for GST – any GST you charge during the quarter needs to be reported and paid to the ATO via a Business Activity Statement (BAS). This might mean additional costs for accounting services.

2) Income

Consider what income your SMSF already generates and what (if any) additional income might come from claiming GST. You’ll then need to offset that against the additional costs of being registered for GST. It might not be worth doing a voluntary registration for your SMSF if the GST credit income is outweighed by what you’ll end up paying for the registration and additional administration.

Making the Decision

For some, the decision to register for GST is mandatory and they should ensure they keep up to date with reporting requirements and taxation law to make sure they are making accurate claims.

For others, the choice to voluntarily register for GST is a nuanced decision and one that should be discussed in detail with an expert to assist in evaluating whether there is a benefit or not.

GST credits could offer an additional form of income, particularly in retirement for certain types and sizes of SMSFs. Whether you register or not, taking the time to understand this option could stand you in good stead.

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.