Tax with Max: SMSFs and GST rebates

SMSFs claiming back GST, grandfathering the new rules for Commonwealth Seniors Health Cards, and more.

Summary: Can a SMSF claim back GST? Will the new Commonwealth Seniors Health Card be grandfathered? Rolling over super and starting a new pension. What are the tax implications for beneficiaries on winding up a super fund? Can the bring forward rule be used after turning 65?

Key take-out: An SMSF may be able to register for and claim GST credits if they do not exceed the financial acquisitions threshold test.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Can a SMSF claim back GST?

In a recent discussion the question of claiming back the GST has arisen. Some accountants advise to claim while others advise that it is not possible as a SMSF is not a business. So can an SMSF claim back the GST on accounting fees, financial planner fees, brokerage and any other expenses associated with running the super fund?

Answer: Where an SMSF does not need to register for GST the benefit of receiving a refund of GST is often outweighed by the cost of preparing quarterly or annual BAS forms. Because an SMSF is a superannuation fund most of its activities are classed as input-taxed supplies. Where an entity makes input taxed supplies GST is not added to its goods or services, but it usually cannot claim a credit for the GST it pays.

If an SMSF owns commercial property and receives more than $75,000 in rent a year there is a requirement for the SMSF to register for GST. If it is earning less than the $75,000 a year it does not need to register and, because the tenant of a commercial property pays the majority of the outgoings, there may not be many expenses an SMSF pays that includes GST.

An SMSF may be able to register for and claim GST credits if they do not exceed the financial acquisitions threshold test. This test is applied in two parts and is extremely complicated. One part of the test requires financial acquisitions to be less than $150,000.

The other part of the test requires input tax credits, to which the fund would be entitled for its financial acquisitions, to be less than 10% of the total input tax credits to which the fund would be entitled for all its acquisitions.

To add to the level of complexity a full claim is not allowed for some expenses. Because this is an extremely complicated area of tax legislation advice should be sought from a professional specialising this area before taking any action.

Will the new Commonwealth Seniors Health Card be grandfathered?

I have had the Health card for several years now, and it was my understanding that existing eligibility conditions would be grandfathered even after January 1, 2015 for existing holders, although reports have not always been clear on this. If the new conditions were to apply, I would certainly lose the card. Could you please clarify what will be happening?

Answer: As to how the changes to the income test for the Commonwealth Seniors Health Card will actually work will only become clear when the legislation is passed. However, if the government retains the policy announced in this year’s federal budget, anyone currently holding a CSHC or who receives one between now and December 31, 2014 will not be subject to the new rules.

This means anyone with a CHSC at January 1, 2015, and receives an account-based pension that started before that date, will continue to have the tax exempt superannuation pension income omitted from their income for CHSC eligibility.

It will be advisable for people who are 65 or older, have money in superannuation but have not yet started an account based pension, and would be eligible for a CHSC under the existing rules, to apply for the card now.

If you currently hold a CHSC and are receiving an account based pension, which was arranged by an adviser that takes commissions, you should review the administration and investment costs for your superannuation account. If they are excessive you will need to change to a more cost-effective provider before January 1, 2015. This is because if you change after that date you will be caught by the new deeming rules that will apply to both the age pension and the CSHC.

Rolling over super and starting a new pension

I am over 65 years of age, a pensioner, but was working full-time for several month during last financial year. My gross wage was $24,384.00. My employer made superannuation contributions to an industry super fund of approximately $2100 on my behalf. I also have an SMSF in pension phase. I am planning to roll over the $2100 to my SMSF and commence a new pension. What additional documentation will it require and does it need a separate account?

Answer: To keep the new pension, which would be commenced from the $2100 rolled in from the industry fund, separate from your existing account based pension you would just need to prepare documentation for that new pension. This could include a letter from you as a member requesting that a pension be commenced from the rollover amount, a minute or circular resolution by the trustees agreeing to pay the pension, and a letter back from the trustees advising you of their decision.

Given the small amount of superannuation being rolled into the fund the extra administration required by starting a new pension would in most circumstances not be worthwhile. It therefore makes sense to once the $2100 has been rolled in from the industry fund to commute your current pension and then commence a new pension.

What are the tax implications for beneficiaries on winding up a super fund?

Can you explain the income tax and capital gains implications for children when a super fund is wound up after death?

Answer: If the member’s account is in pension phase at the time of death no capital gains or income tax will be paid by the fund when selling the investments to wind it up. If the member’s account is in accumulation phase income and capital gains tax could be payable when the investments are sold.

If the children receiving the superannuation benefits are regarded as dependants of the member no tax will be payable. If they are not classed as dependants income tax and Medicare Levy would be payable by them on the taxable superannuation benefits of 17%.

Over recent years I have been advising couples in an SMSF to have a review done of their superannuation fund when one of them dies. This review would take into account the amount of income the remaining member needs, calculating how much capital would be required in the SMSF to pay the income for an estimated period of time, and consider paying out as a lump sum any excess capital to avoid the beneficiaries of their estate paying the 17% tax

Can the bring forward rule be used after turning 65?

You recently responded to a query from a reader who asked how much non-concessional super he could have contributed in 2014, and how much he could contribute in 2015 in light of the fact he turns 65 in October and is not working. You said that if he made a contribution after turning 65 he would have to meet the work test to contribute $540,000 in 2015. I thought that after turning 65 the bring forward rule could not be used.

Answer: In general terms once a person is 65 or older they are unable to use the bring forward rule to make non-concessional contributions. The only exception to this is the financial year in which a person turns 65. When a person turns 65 during a financial year they can use the bring forward rule as long as they have not exceeded the non-concessional contribution limits in the previous two years.

Where the non-concessional contribution is made prior to the person turning 65 there are no other requirements to use the bring forward rule. If the contribution is made after the person turns 65, but before June 30, they must have passed the work test in that financial year.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

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.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au