SMSFs and newly built homes
The ATO have recently alerted SMSF trustees about four things to consider when investing in developing or building new residential homes.
- Build to Rent
For residential developments that are built with the intention of renting them out long term once built, its important to remember that these are input taxed, which means that the SMSF cannot claim GST credits on building or other costs that relate to renting the home, but also that GST does not apply to the rent received.
- Using the margin scheme
The margin scheme refers to a method of working out the GST payable when a property is sold as part of a SMSFs business. The SMSF must be eligible to apply the margin scheme. The GST will be based on the difference between the initial purchase price of the property, and the property’s sale price. There also needs to be a written agreement in place with the purchaser prior to selling the property using the margin scheme prior to the settlement date. The ATO has a GST property tool that trustees can use to assist with checking eligibility and calculating the margin.
- Change in creditable purpose
When a change in how a property is used takes place, it can change the “creditable purpose” and hence can change the amount of GST a SMSF can claim. An example of this is where a property was built with the intention of selling, but then changed to renting it out. The ATO remind trustees to keep good records so that any adjustments to GST credits can be made in future if required.
- GST at settlement
The ‘GST at settlement’ withholding measure may be applicable on the sale of new residential homes and land. In this event, GST is part of the sale price, however at settlement the purchaser must then pay the withheld amount of GST directly to the ATO, and then pay the seller the balance of the sale price of the property (i.e. minus the GST amount). When payments are received, the ATO with match up the sellers ABN when they lodge their BAS and apply the GST credit. Hence, sellers need to lodge their activity statements and include the property sale to get the credit transferred to them.
If any of the above scenarios are applicable to your SMSF, ensure you have discussed these issues with your SMSF adviser or accountant, and taken the appropriate required action.