Popular SMSF investment option may trip up some trustees

New residential property is a popular investment for many self-managed superannuation funds, however the ATO is concerned that not every SMSF trustee is fully aware that such an investment may bring with it unexpected GST obligations.

It says that trustees who engage a representative when buying new residential property will need to complete a signed declaration so the representative can lodge two required forms and pay GST on behalf of the purchasing trustee.

Purchasers who have a GST withholding obligation must complete and lodge two forms:

  • when they sign the contract, lodge Form one: GST property settlement withholding notification using information from the supplier notification (see below)
  • when the property settles
    • lodge Form two: GST property settlement date confirmation, and
    • pay the GST withheld amount.

 The forms and instructions can be found here.

If there were any mistakes on Form two, the ATO should be contacted to have it cancelled before lodging a new form. If SMSF trustees purchase multiple properties, they should lodge a new form for each property transaction.

Supplier notification
To complete Form one, the supplier (seller/vendor) needs to give the buyer a “supplier notification” so the purchaser knows whether or not there is a GST withholding obligation.

If there’s an obligation to withhold GST, the supplier notification must include:

  • the name and ABN of all suppliers
  • GST branch number (if applicable)
  • the amount of GST to be withheld (rounded down to the nearest dollar)
  • when the GST must be paid
  • GST-inclusive contract price (plus the GST inclusive market value of non-monetary consideration, such as land swaps).

A supplier’s written notice can be relied on:

  • when it states a purchaser isn’t required to pay an amount to the ATO. In most states and territories the standard contract of sale clearly states if a purchaser is required to withhold GST or not
  • if the purchaser is unaware of an error on the notice and the supplier doesn’t tell them.

However, if the purchaser or their representative knows that a supplier is registered for GST and selling new residential premises, the ATO considers it unreasonable not to withhold and pay an amount to it at settlement. The ATO has stated that it won’t retrospectively penalise purchasers who acted reasonably if it’s later found that a supplier hasn’t met their obligations.

It has produced information, including a video, which you can share with clients.

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