Hello Rashmi
Thanks for the question.
GST issue
As a general proposition, a super fund that is registered for GST and that makes a creditable acquisition of real estate, would be in a position to claim GST input tax credits in the BAS for the period in which the contract is settled.
A suggested ATO resource and reference in GSTR 2000/28:
https://www.ato.gov.au/law/view/document?LocID=%22GST%2FGSTR200028%2FNAT%2FATO%22&PiT=20240117000001
The SMSF will need a valid tax invoice from the vendor.
The SMSF will need to remain registered for the GST and charge GST on rent to the related party tenant, in order to avoid an adjustment event in relation to the input tax credits that it can claim back upon settlement.
Related party tenant issue
From my reading of the facts, the property will initially be vacant upon settlement. After settlement, the SMSF as the new owner will make alterations to the interior, once these are complete, a related party will sign a lease and start paying arm’s length/market value rent.
The question is whether this is alright from a section 109 perspective.
The issue at hand requires us to focus on how would an arm’s length tenant and arm’s length landlord deal with each other in this scenario.
For example, if the changes to the interior are specific to the needs of the related party tenant, it might be the case that a genuine arm’s length landlord would only make such changes if a lease had been signed prior to commencement of these works. However, it might still be an arm’s length term that lease payments only commence once the works are finished and the tenant moves in.
Would be happy to hear the thoughts of other auditors in relation to this matter.
Best regards
The Auditors Institute