“There is a financial acquisitions threshold which allows certain entities that have a small proportion of their of financial supplies that enables them to claim all the input tax credits in relation to those financial acquisitions.”

He continued that common financial input tax supplies include providing, buying and selling shares, receiving interest income, contributions and rollovers, and proceeds from insurance policies.

“They're all financial and input tax supplies and in relation to the acquisitions, you don't get to claim the GST on them,” he said.

“However, there is a special concession in relation to those entities that provide financial supplies that's called the financial acquisition threshold, the purpose of which is to allow entities that make a relatively small amount of financial supplies, as compared to their taxable supplies or their GST-free supplies, to effectively claim a full input tax credit relating to those financial acquisitions.”

Ellem added that this means that if an entity does not exceed the financial acquisition threshold, it will be entitled to claim the full input tax credits for the acquisitions relating to financial supplies.

“So again, a super fund is making financial supplies. That's input tax and, generally it can't claim GST, but there's this financial acquisitions threshold that says if you pass it, then you get to claim all the GST, regardless of the fact that the acquisition is in relation to financial supplies,” he said.

There are two tests to determine if an entity has reached its threshold and the GST credits on financial supplies for a 12-month period.

“You have to constantly monitor whether you meet this financial acquisition threshold, and get to claim all the GST input credits embedded in acquisitions relating to financial supplies, and test every month,” Ellem said.

He continued that the first test in the financial acquisition threshold is that GST credits on financial acquisitions during the 12 months must not exceed $150,000. It is the second test which an SMSF will generally fail, that GST credits on financial acquisitions for the 12-month period cannot exceed 10 per cent of the total amount of GST credits of all credits that could be claimed.

“That means you can't have more than 10 per cent of the total amount of GST credits relating to financial supplies,” he said.

“The SMSF is likely to exceed test two in that the total GST credits from those financial acquisitions will be more than 10 per cent of the total GST credits that the fund could be claiming and that means you can't claim any input tax credits in relation to the fund.”

However, Ellem explained that notwithstanding failing the financial acquisition threshold test, a GST-registered SMSF may be able to claim a Reduced Input Tax Credit (RITC) in respect of certain financial acquisitions.

“Where the financial acquisition falls within the table in GST Regulation 70-5.02, a GST registered SMSF could claim a 75 per cent RITC. An example of such a financial acquisition that permits a GST-registered SMSF to claim a RITC is brokerage on share trading,” he said.