ATO ID 2005/353: GST and adjustment of input tax credit after legislative change for supply of retirement village accommodation
Date of decision: 9 August 2005
Business line: Indirect Tax

Issue
Is the entity, a supplier of retirement village accommodation, entitled to make an adjustment under Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) or revise its previous business activity statements (BASs) to claim input tax credits for the construction costs of the retirement village incurred in prior tax periods as a result of the introduction of section 38-260 of the GST Act?

Decision
No. The entity is not entitled to make an adjustment under Division 19 of the GST Act or revise its previous BASs. The correct method of determining the entitlement to input tax credits not previously claimed is to make an adjustment under Division 129 of the GST Act.

Facts
The entity is a charitable institution that built a retirement village and is registered for goods and services tax (GST). The entity accounts for GST on a non-cash basis. Prior to 14 December 2004, the entity entered a construction contract that required monthly progressive payments. Before construction commenced, the entity determined that the supply of accommodation would be input taxed, therefore no input tax credits were claimed when it made progressive payments for the construction costs. On 14 December 2004, section 38-260 of the GST Act was introduced. This section provides that if certain conditions are met, the supply of accommodation in a retirement village operated by a charitable institution is GST-free. The entity meets these conditions and its supplies of accommodation in the retirement village are GST-free.

Reasons for decision
Summary: For Division 19 of the GST Act to apply, the introduction of section 38-260 into the GST Act must be an 'adjustment event'. A change in the law with prospective application (such as section 38-260 which only applies to supplies made on or after 14 December 2004) is not considered to give rise to an adjustment event in these circumstances as it does not cause acquisitions associated with the construction of the retirement village to become creditable acquisitions (paragraph 19-10(c) of the GST Act). At the time the entity made the acquisitions (prior to 14 December 2004), the acquisitions related to making supplies that would be input taxed. Consequently, the acquisitions were not made for a creditable purpose. The introduction of section 38-260 of the GST Act does not cause an acquisition made prior to 14 December 2004 which was not made for a creditable purpose to become creditable at the time of acquisition or at any other time prior to 14 December 2004. Similarly, an entity can only revise a previous BAS where it has made an error or omission, for example, it did not claim input tax credits on creditable acquisitions. In this instance, the entity has not made an error in a previous BAS as it was not entitled to claim an input tax credit at the time of acquisition. As section 38-260 of the GST Act only applies prospectively, it does not result in the acquisition becoming creditable at the time of acquisition. An adjustment under Division 129 of the GST Act arises for an acquisition in an adjustment period where: The actual application of the thing acquired is the extent to which it is applied for a creditable purpose during the period: At the time that the entity made the progressive payments under the construction contract, input tax credits were not claimed as it had determined that the supplies of accommodation would be input taxed. It is the subsequent introduction of section 38-260 of the GST Act, which only applies to supplies made on or after 14 December 2004, that has caused the entity to review the extent of creditable purpose of these acquisitions. Therefore, as section 38-260 of the GST Act only applies to supplies made on or after 14 December 2004, the appropriate method of determining the entitlement to input tax credits on the construction costs of the retirement village is to make an adjustment under Division 129 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 Division 19 paragraph 19-10(c) section 38-260 Division 129
Related public rulings and determinations: GSTR 2000/24
Subject references: GST free GST non-profit GST charities GST input tax credits and creditable acquisitions GST net amounts and adjustments Adjustments GST property and construction GST retirement villages GST supplies and acquisitions Creditable acquisition Creditable purpose Input taxed supplies