Ask Max: Your questions answered

GST on SMSF property, changing a company’s default super fund, SMSF age limits, the Medicare Levy, calculating CGT.

Summary: This article provides answers on whether GST is payable on buying a super fund property, changing a company’s default super fund, SMSF age limits, the Medicare Levy, and calculating capital gains tax.
Key take-out: The requirement to include GST in the sale price of a property used for business purposes will depend on whether the seller is or needs to be registered for GST.
Key beneficiaries: SMSF trustees. Category: Portfolio management.

GST on property bought from a SMSF

Does purchasing a residential property from your own SMSF attract GST? That is, does your SMSF have to levy GST on the purchase price?

Under the GST legislation there are three types of income. GST free income includes medical income, education income, and income generated from exports. GST free income does not have GST added to the cost.

The second type is input taxed income that includes income earned by financial institutions such as banks and the renting and sale of most residential property. Input tax income also does not have GST added to the cost.

The third type is GST taxable income that is effectively all other income. The sale of new residential property is classed as GST taxable and GST is added to the cost of new residential properties. No GST would be included in the purchase price as the property being sold is not a new property.

Changing a company’s default super fund

I have recently taken on a job as an office manager of a horticultural business and I have had some employees wanting to see if we can change our default super fund. The business currently offers AMP Custom Super as its default fund, of which all full time employees are members. Fees do seem excessive but my understanding is that employees get a better deal on death and disability insurance. What is your opinion?

The AMP Custom Super more than likely has an AMP agent looking after it and receiving a trail commission that adds to the cost of that super fund. To properly assess whether your employees are receiving the best deal a comparison should be made of all components of the AMP super fund and alternatives such as an industry fund.

Factors to consider in doing a comparison include administration fees charged by the super fund, investment management fees deducted from income earned, the cost of insurance within the fund, and the number of investment choices available in the fund. I would be surprised if after taking all of these matters into consideration that you would not get a better deal for your employees by switching to an industry fund.

Is there an age limit on setting up a SMSF?

Could you please provide us with some guidelines relating to an SMSF? I am 62 years old and my wife is 60. We have both retired and have two properties (houses). We bought the first house in 2000 and the second one in 2010. I withdrew my money from my superannuation as a lump sum to buy the second house. We rented the first and we are living in the second house. We have no mortgage on both houses and we have savings of around $50,000 in the bank.

Are we still able to set up an SMSF? If yes, who should we contact to set up the SMSF or can we set it up ourselves? What are the benefits of an SMSF? Once set up can we transfer the value of our properties into the SMSF?

There is no age limit on when you can set up an SMSF. There are a number of alternatives open to you with regard to setting up an SMSF but, as an SMSF requires a trust deed, this normally must be done by a lawyer and you therefore you could not do it yourself. There are many professionals that specialise in SMSFs that will be able to help and advise you. A good place to start your search would be to visit the website of the SMSF Professionals Association of Australia. They have a list of accredited SMSF specialists.

As to whether an SMSF will be your best option I cannot advise you as I do not know have enough information. One of the accredited SMSF specialists I previously mentioned would be able to assess whether an SMSF would be your best option.

If you did set up an SMSF one of the investments that cannot be purchased is residential property owned by a member. If you wanted to get the value of your rental property into your SMSF you would need to sell it.

When is the Medicare Levy surcharge applied?

Last year my husband and I spent nearly eight weeks travelling overseas. We took out travel insurance and arranged to stop our private health insurance for the time that we were away. This seemed logical, as we would have no way of using our health insurance while overseas, and the travel insurance covered the most likely health costs while we were travelling. It now appears that we will have to pay a Medicare surcharge for the time during which we were not covered by private health insurance. Is this correct?

The Medicare levy surcharge is payable by any tax payer that does not have private health insurance with taxable income in excess of a statutory threshold. Its impact is as harsh as many other taxes such as the excess contributions tax and the superannuation guarantee contribution tax.

The thresholds and surcharge applied for a family for the 2013 year are 1% for income over $168,000 up to $194,000, 1.25% where the income is between $194,001 and $260,000, and 1.5% where the income exceeds $260,000.

To avoid the imposition of the Medicare Levy surcharge a couple must have private health insurance for the whole of the year that covers them and all of their dependents. In your case as you dropped your private health insurance for the time you were overseas, and because your income exceeded the threshold, you became liable for the surcharge.

This requirement to have private health insurance for a couple and all of their dependents can result in the surcharge being payable even though private health insurance has been taken out. One example of this is when a wife takes out private health insurance as a single person and her husband chooses not to take out insurance. In this case as not all of the family are covered by health insurance both would pay the surcharge if their income exceeds the threshold.

The Medicare Levy surcharge can even be paid in a situation where a couple have a baby and it is not added to their private health cover. In this case as the dependent child was not covered by their private health insurance the couple will also become liable for the surcharge if their income exceeds a threshold.

How is capital gains tax calculated?

Is the calculation of capital gains tax payable linked in any way to your marginal tax rate? What is the situation when you are a self-funded retiree?

Capital gains tax is not an extra tax but is legislation that sets out how a capital gain is calculated. For individuals where an asset is held for longer than 12 months they receive the 50% general exemption and the remaining 50% of the capital gain is taxable. Where an asset is held for less than 12 months all of the gain is taxable.

In practical terms the taxable capital gain is added to all other income earned by an individual and tax is paid at the applicable marginal rate. In some cases this can mean, depending on the amount of the capital gain, the tax could be paid at different marginal tax rates. Whether a person is a self-funded retiree has no influence on how the capital gains tax is calculated and the marginal rate of tax paid.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

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