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Anna Han Willetts

May 23, 2023

SMSF (GST not registered) purchased a commercial property from an SMSF (GST registered) with GST free purchase price

in SMSF Technical Forum

Backgroud:

SMSF A - purchaser, GST not registered. Member Dr A and Mrs A. Dr A operates the Medical Practice A from the underlined property before purchasing.

SMSF C - seller, GST registered. SMSF C used to charge a $5200 + GST per month rent to Medical Practice A.

In Feb 2022, SMSF A purchased the underlined property where Medical Practice A rents from SMSF C for $720K without GST, and continue leasing to Medical Practice A for $5500 (GST free) per month.

I am auditing SMSF A for the 2022 financial year and came across the above transaction. My understanding is seller and purchaser both have to be GST registered so the seller can sell the property on the basis of 'Going Concern' hence GST free. My questions are:

- In the above situation, should I suggest SMSF A backdate GST registration on the date of settlement, so to make the going concern eligible? Is this even an audit problem from my end?

Thanks

5 comments

Comments (5)

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Michael Mackenroth

May 29, 2023

The legislation says "required to be registered". If the rent is $5,200 per month, it is below the GST threshhold and therefore is not required to be registered. I would think that would kill the going concern argument. It is not uncommon for such contracts to contain a clause such that the transaction is treated as a GST free transaction, however, in the event that proves not to be the case, then the purchaser agrees to pay the GST. Secondly is realising a capital asset by sale carrying on an enterprise?

KOON CHENG WEE

May 23, 2023

I don't think you can back date a GST registration.

However, the GST paid can be included as part of the purchase price.

Anna Han Willetts

May 23, 2023

Thanks for getting back. The fund's accountant has agreed to backdating the GST registration for SMSF A and amend the accounts for the GST issues accordingly.

THE AUDITORS INSTITUTE

May 23, 2023

Hi Anna

Yes I agree the seller & purchaser are required to be GST registered for the "going concern" to apply & there be no GST in the purchase price.

Yes depending on the time period the Fund could GST register from the date of purchase.

Given the issues raised I would want to make sure the contract has been correctly prepared as a starting point. The Fund should get a lawyer / tax accountant to review the contract & the GST implications.

Arguably not an audit issue for SMSF A as if there is no GST in the purchase price per the contract and the Fund is not GST registered the Fund pays the purchase price and does not claim back any GST (as none to be claimed).

Thanks

SMSF AAA

Ronald Malafiej

May 29, 2023

Replying to

There is no issue in backdating GST Registration up to 4 years.

I would question however the original contract which would have noted that the purchaser was not registered for GST at the time of purchase. one would then need to question as to whether this would be tax evasion? From an audit point of view you are looking at the documents as presented for the audit which would not have included GST. The Fund's Accountant should probably seek a private ruling re the GST.