Most people will already know that various Federal and State or Territory taxes apply when buying, owning and selling real estate in your own name.
Land tax, stamp duty, capital gains tax and income tax are just some examples.
But do you have any idea which of these taxes apply when your SMSF owns property, or how they’re calculated? Here I’m going to explain the details.
State and Territory taxes
Most States and Territories will apply land taxes. Your SMSF – because it’s a separate entity to you – has its own threshold.
Typically, land tax is payable annually and in the majority of cases is worked out on 31 December and payable not long after then.
All jurisdictions have excellent websites which detail when this tax is payable, how the tax is calculated and when your super fund might be exempt or eligible for a concession.
All States and Territories charge stamp duty – based on the larger of the market value or sale price of a property – whenever property changes hands. This is often called ad valorem stamp duty.
It will apply when you contribute a commercial property in-specie into your SMSF (because the owner of the property has changed). Some States and Territories provide stamp duty concessions for these transactions.
If you have entered into a Limited Recourse Borrowing Arrangement (LRBAs) then you will need to have the mortgage document stamped, which might see nominal duty applied. You might also need to get the Holding Trust deed stamped for nominal duty.
Just a note about LRBAs – if you complete the paper-work for these transactions in the wrong order or in the wrong way (and this process varies from State to State) then you might incur ad valorem stamp duty up to three times.
In some States and Territories, you need to register commercial leases, which may be subject to duty.
Capital gains tax
CGT will apply if your super fund sells a property for a profit and those assets aren’t being used for pension paying purposes.
This tax applies regardless of when your super fund bought an asset. For individual taxpayers, any asset purchased before September 1985 is exempt from CGT but super funds were taxed for the first time in July 1988.
The rate of CGT varies depending on when the asset was acquired (if the asset was purchased before 21 September 1999 then you have a choice as to how you wish to calculate this gain). If you have any questions then I suggest you get some advice to make sure you make the right decision.
In most cases, you will probably assume that two-thirds (that is, 66.66%) of the profit (sale price less purchase price and all costs of buying and selling the asset) will be taxed. As super funds are taxed at 15% then the effective tax rate becomes 10 per cent.
If the assets are being used to pay a pension, then any gain will be CGT free.
If your fund is using the unsegregated asset approach then your fund’s actuary will determine what percentage of any gain is exempt for tax. If your fund uses the segregated assets approach then CGT won’t apply if the property has been specifically set aside for one or more pensions.
Any rent from a non-pension property will be income in the fund each year and will be subject to tax at 15%. (Rent from properties used exclusively or partly to pay a pension will be tax-free).
The costs of acquiring the taxed rental income will also be deductible. Typical rules apply here – agent fees, interest costs (for LRBAs), maintenance costs, depreciation, building allowances and so on, are all allowed as a tax deduction to the fund.
Any costs of acquiring rental income for pension assets are not tax deductible in your super fund.
Local government and utility rates
Finally, don’t forget that for all properties your local government will charge rates and you will also have to pay utility access fees (for gas and electricity).
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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