SMSFs – GST and financial supplies
Self-managed super funds (SMSFs) that are registered for GST and make financial supplies (such as providing an interest in a regulated super fund or buying and selling shares) may be able to claim some or all of the GST credits on purchases related to their financial supplies.
Find out about:
Registering for GST
You must register for GST if your GST turnover is $75,000 or more. GST turnover does not include input-taxed sales, such as financial supplies and renting or selling residential premises. Most SMSFs don't have to register for GST because they mainly make input taxed sales.
However, you may choose to register for GST. In deciding whether to register you should consider:
- the increased time and cost of record keeping and reporting
- the fact that GST applies to taxable sales and you could claim GST credits for creditable purchases
- whether you can claim reduced GST credits on your reduced credit acquisitions.
Financial supplies and GST credits
Generally you make a financial supply if you do either of the following:
- provide an interest in a regulated super fund
- buy and sell shares.
Financial supplies are input taxed. This means you:
- don't pay GST to us on financial supplies you make
- generally can't claim GST credits for the GST included in the price you pay for anything you purchase to make those supplies.
While you generally can't claim GST credits on purchases you use to make financial supplies, you may be able to claim them if you don't exceed the financial acquisitions threshold.
If you exceed the financial acquisitions threshold you can still generally claim reduced GST credits if your purchase is a reduced credit acquisition.
- GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions.
Financial acquisitions threshold
The financial acquisitions threshold allows entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or GST-free supplies, to claim full input tax credits for those financial acquisitions.
If you do not exceed the financial acquisitions threshold, you will be entitled to full input tax credits for your purchases (acquisitions) relating to financial supplies.
There are two tests, based on the purchases you make over a 12-month period, to determine if you exceed the financial acquisitions threshold. You will exceed it if either test applies.
Reduced credit acquisitions
A reduced credit acquisition is a specified type of purchase for which a reduced GST credit is allowed, when you use the purchase to make financial supplies. For these purchases you can claim 75% of any GST included in the purchase price.
A lower rate of 55% applies to certain purchases made by recognised trust schemes, however a SMSF is not defined as a recognised trust scheme for GST purposes.
Find out about:
Common reduced credit acquisitions
Investment portfolio management functions
In this context, the term 'investment portfolio' means the same as 'asset portfolio' and relates to particular classes or sectors within a particular class of investments you own.
GSTR 2004/1 - Goods and services tax: Reduced tax acquisitions states that management involves more than just providing advice for you to act on. This means that obtaining financial advice by itself is not a reduced credit acquisition.
Investment management services include, but are not limited to:
- establishing a financial plan or investment strategy together with the ongoing implementation, execution or refinement of that plan or strategy
- ongoing implementation or execution of a given investment mandate
- providing ancillary reports or statements to clients.
The following administrative functions are reduced credit acquisitions if they relate to investment funds, including superannuation schemes:
- maintaining member, employer and trustee records and associated accounting
- processing applications, contributions, benefits and distributions
- ensuring compliance with industry regulatory requirements (excluding taxation and auditing services).
A regulatory requirement in this context refers to a Commonwealth, state or territory law. For example, any requirement in the SIS Act is a regulatory requirement for SMSFs.
Trustee records include minutes of trustee meetings, records of all decisions affecting the trust and similar documents.
Associated accounting refers only to those accounting tasks that are associated with maintaining member, employer or trustee records. It includes:
- posting entries to accounts to record individual member or employer contributions
- debiting charges to individual member accounts
- recording payments to members and investors of a managed investment scheme.
Things that are not reduced credit acquisitions
Purchases not mentioned in the complete list in Division 70 of Part 4-2 of the GST Act are not reduced credit acquisitions.
Tax and auditing services are specifically excluded.
Tax services that are excluded are services such as:
- providing tax advice
- preparing and lodging a tax return, statement or specific requests for information we make
- representing you in connection with any audit activities we start.
Auditing service is a broad term that refers to any service that systematically looks at accounting records and financial statements to work out whether they give a true and fair view of the business carried on.
The following purchases are also generally not reduced credit acquisitions:
- accounting services that are not related to maintaining member, employer or trustee records
- providing advice and preparing financial statements (other than those you must provide under a regulatory requirement)
- legal services (including legal costs to set up your SMSF).
In very limited circumstances, where these purchases form an ancillary, incidental or integral element of an administrative function under funds management services, they may be treated as reduced credit acquisitions.
GST credits you can claim
You can generally claim full GST credits for items you purchase to make a taxable sale if you satisfy all the requirements of the GST law.
Example: How to claim GST credits
Hazel Super Fund is an SMSF and is registered for GST. The fund makes the following purchases (amounts include GST):
- repairs to residential property – $7,000
- repairs to commercial property – $14,300
- management of investment portfolio – $1,100
- maintenance of member records and associated accounting (excluding auditing and tax services) – $880
- brokerage on share sale – $440.
Of these, the last three are financial acquisitions.
Total GST credits on financial acquisitions = $220, that is, ($1,100 + $880 + $440) ×(1 ÷ 11).
Total GST credits that the fund could claim = $1,520, that is ($14,300 + $1,100 + $880 + $440) × (1 ÷ 11).
The fund has exceeded the financial acquisitions threshold as its total GST credits on financial acquisitions ($220) is more than 10% of the total GST credits the fund could claim ($1,520).
Providing a residential property for lease is an input-taxed supply so Hazel Super Fund cannot claim GST credits for GST they paid on purchases that relate to making that supply.
Providing a commercial property is a taxable supply. Hazel Super Fund can claim GST credits for GST they paid on purchases that relate to making taxable sales. The GST credit is $1,300 ($14,300 × (1 ÷ 11)).
Regarding the last three purchases, fees paid to manage the fund's investment portfolio, brokerage costs and maintaining its member records and associated accounting are all purchases that relate to making financial supplies.
The fund can claim reduced GST credits for these purchases because they both:
- are listed in the GST law as reduced credit acquisitions
- relate to making financial supplies.
Therefore, the fund can claim reduced GST credits for:
- portfolio management $75 ($1,100 × (1 × 11) × 75%)
- records maintenance and associated accounting $60 ($880 × (1 ÷ 11) ×75%)
- brokerage costs $30 ($440 × (1 ÷ 11) × 75%).
Total reduced GST credit they can claim is $165 ($75 + $60 + $30).
Total GST credit they can claim on purchases they use to make taxable sales is $1,300 ($14,300 × (1 ÷ 11).
Total credit they can claim as GST credits and reduced GST credits is $1,465 ($1,300 + $165).
End of example
If you're not sure whether your purchases are reduced credit acquisitions, you may request a private ruling:
Purchases partly used for making financial supplies
If you exceed the financial acquisitions threshold (for example, because you invest primarily in shares and managed funds, like many other SMSFs), there are two possibilities for purchases used partly for making financial supplies.
For the part of the purchase that relates to making financial supplies, you may be able to claim a reduced GST credit if it is a reduced credit acquisition.
For the part of your purchase that does not relate to making financial supplies, you may be able to claim a full GST credit, depending on how you use the purchase in your business.
If you do not exceed the financial acquisitions threshold, depending on how it is used you may be able to claim a full GST credit on the whole of your purchase regardless of whether or not it is a reduced credit acquisition.
Example: Purchases that relate to both taxable sales and input-taxed sales
Koh-ee Super Fund (Koh-ee):
- is an SMSF
- is registered for GST
- exceeds the financial acquisitions threshold.
Koh-ee purchases investment portfolio management services of $1,100 (inclusive of GST) in relation to its interests in:
- a domestic share portfolio
- commercial property.
For the part of the services that relates to making financial supplies, Koh-ee cannot claim full GST credits. However, it can claim a reduced GST credit as it is a reduced credit acquisition.
Based on previous years' data Koh-ee estimates the purchase is used 55% for making taxable sales and 45% for making financial supplies.
So, the extent to which Koh-ee makes the purchase for a creditable purpose is:
55% + (45% × 75%) = 88.75%.
Koh-ee applies this percentage to the GST on the purchase to work out the GST credit it can claim.
The reduced credit acquisition includes GST of $100, therefore Koh-ee can claim $88.75 (100 × 88.75%).
Koh-ee also purchases auditing and tax services for $2,200. This purchase is not a reduced credit acquisition and relates to the whole of the business; it is not for any particular sale made by Koh-ee. Therefore Koh-ee can only claim credits for part of the purchase.
An acceptable method Koh-ee could use to work out a GST credit claim is to consider how other inputs have been used over previous years.
For example, Koh-ee uses investment portfolio management services of 55% for taxable sales and 45% for input taxed sales. Using this method, Koh-ee works out the credits it can claim as follows:
End of example
- GST on purchase is $2,200 × (1 ÷ 11) = $200
- GST credit claimed is $200 × 55% = $110.
- GSTR 2006/3 - Goods and services tax: determining the extent of creditable purpose for providers of financial supplies
How to treat in specie contributions and distributions
In specie contributions and distributions are contributions and distributions of things other than money.
Under super law, in specie contributions that are allowed to be transferred into a fund include listed securities and business real property (including commercial property) at market value.
Generally, an in specie contribution of commercial property or shares a member makes to you has no GST consequences. However, this depends on your specific circumstances.
If you're a discretionary trust, the GST consequences of an in specie distribution you make to a member will also depend on the circumstances.
If you're not sure about the GST consequences of your in specie contributions or distributions, you can request a private ruling:
Self-managed superannuation funds (SMSF) registered for GST may claim some or all the GST credits on purchases related to financial supplies they make.