ATO ID 2002/686: GST and input tax credits for renovating farm manager's residence
Date of decision: 15 February 2002
Business line: Indirect Tax

Issue
Is the entity, a farm operator, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions made to renovate the farm manager's residence?

Decision
No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act for acquisitions made to renovate the farm manager's residence.

Facts
The entity is a farm operator. The entity's farming property is located in a remote area. The entity employs a farm manager to manage the property. The farm manager is an employee of the entity. It requires the manager to stay on the property and provides the manager with residential premises on the property. The farm manager does not pay any rent for the premises. The entity engages various suppliers to renovate the residence. The supply of these goods and services to the entity are taxable supplies under section 9-5 of the GST Act. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Section 11-20 of the GST Act provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act lists the requirements that must be satisfied for an entity to make a creditable acquisition. One of those requirements is that the entity must acquire the thing solely or partly for a creditable purpose (see paragraph 11-5(a) of the GST Act). Section 11-15 of the GST Act defines the meaning of creditable purpose. Paragraph 11-15(2)(a) of the GST Act provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. The entity's acquisitions relate to the provision of a residence to the farm manager. Therefore, it needs to be determined whether this provision of a residence is an input taxed supply. Under section 40-35 of the GST Act, the supply of premises by way of lease, hire or licence is input taxed where the supply is of residential premises. Section 195-1 of the GST Act defines residential premises to mean, in part, land or a building that is occupied as a residence, or for residential accommodation; or is intended to be occupied and is capable of being occupied, as a residence, or for residential accomodation. The premises, in this instance, are capable of being, and are, occupied as a residence. Accordingly, the entity is providing the farm manager with residential premises. The supply of the residential premises is also the provision of a housing fringe benefit to the farm manager as an employee. Paragraph 19 of Goods and Services Tax Ruling GSTR 2001/3 provides that the consideration for the supply of the fringe benefit is the services of the employee (unless the employee makes a payment or contribution). However, it must be determined if the supply of the fringe benefit is a taxable supply. The supply of the residential premises cannot be by way of lease or hire as the farm manager does not pay any consideration for the residential premises. However, by virtue of the entity's requirement that the farm manager occupy the residential premises as a condition of employment, the farm manager subsequently has a licence to occupy the premises. The entity is therefore supplying residential premises by way of licence which is input taxed under section 40-35 of the GST Act. As the entity is making an input taxed supply of the residential premises, the acquisitions made to renovate the residential premises are acquisitions that relate to the making of an input taxed supply. The entity is not making the acquisitions for a creditable purpose (see paragraph 11-15(2)(a) of the GST Act) and the acquisitions are not creditable acquisitions under section 11-5 of the GST Act. The entity therefore is not entitled to an input tax credit under section 11-20 of the GST Act for acquisitions made to renovate the farm manager's residence.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 11-5 paragraph 11-5(a) section 11-15 paragraph 11-15(2)(a) section 11-20 section 40-35 section 195-1
Related public rulings and determinations: GSTR 2001/3
Subject references: Goods & services tax GST property & construction GST residential premises GST residential rents GST supplies & acquisitions Creditable acquisition Creditable purpose Input taxed supplies