GXCX v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2008/2901)
Judgment date: 31 July 2009
Date published: 23 October 2009

Summary of decision:
Outlines the Tax Office response to the Tribunal's decision in this matter which was concerned with, for GST purposes, adjustments arising in relation to changes in extent of creditable purpose and new residential premises.

Overview of facts:
1. The applicant was registered for the GST. | 2. The property subject to these proceedings was purchased by the holding company in early 2000. | 3. Funds in excess of $12 million were expended in converting the premises to individual residential apartments and on associated costs. | 4. The work was completed in late December 2001. | 5. The applicant claimed input tax credits in excess of $1.2 million on the basis that once completed the apartments were to be sold as new residential premises. | 6. The development consisted of the construction of 91 new residential apartments. | 7. Before and during construction 69 apartments had been sold. | 8. When the development was completed 22 apartments remained unsold. | 9. In December 2001 the applicant rented the first of these remaining 22 apartments. | 10. By June 2002 all of the remaining 22 apartments had been tenanted. They remained tenanted or available to be tenanted thereafter. | 11. The apartments were tenanted under 6 monthly leases at a time. Accordingly the 22 apartments were used to make input taxed supplies. | 12. Ten of these 22 apartments were sold between April 2008 and January 2009 and the remaining 12 apartments had not been sold as at the date of the hearing in 2009. | Issues decided by the court or tribunal | 1. Whether the applicant had discharged its onus in evidencing that it held the "dual purpose" of renting and selling with regard to the 22 rented apartments. | The Tribunal was satisfied that the holding company held two concurrent intentions with respect to the 22 rented apartments. In the short term the holding company intended to rent the apartments but in the medium to long term the intention was to sell the apartments. The time at which the apartments would be sold was not set but would be determined by market conditions. The apartments would be sold when the market provided the opportunity for the holding company to realise the anticipated substantial capital growth in the future. [paragraph 27 of decision] | 2. Whether, if the applicant had that dual purpose, an intention to sell in the future amounted to an "actual application" for the purposes of the method statement in section 129-40 of the GST Act. | No | The Tribunal referred to the language of the statute and how it focused upon the application during the relevant period of review. The method statement in section 129-40 of the GST Act directs attention to "the extent (if any) to which you have applied the thing acquired ... for a credible purpose". [paragraph 34 of decision] | The Tribunal found the application of the acquisitions during the relevant period was entirely for a non-creditable purpose. Whilst Deputy President Hack accepted that the holding company held the intention to sell at some time in the future, he did not regard the holding of that intention, without more, as amounting to an application of the goods and services. [paragraph 35 of decision]

Issues decided:
1. Whether the applicant had discharged its onus in evidencing that it held the "dual purpose" of renting and selling with regard to the 22 rented apartments. The Tribunal was satisfied that the holding company held two concurrent intentions with respect to the 22 rented apartments. In the short term the holding company intended to rent the apartments but in the medium to long term the intention was to sell the apartments. The time at which the apartments would be sold was not set but would be determined by market conditions. The apartments would be sold when the market provided the opportunity for the holding company to realise the anticipated substantial capital growth in the future. [paragraph 27 of decision] 2. Whether, if the applicant had that dual purpose, an intention to sell in the future amounted to an "actual application" for the purposes of the method statement in section 129-40 of the GST Act. No The Tribunal referred to the language of the statute and how it focused upon the application during the relevant period of review. The method statement in section 129-40 of the GST Act directs attention to "the extent (if any) to which you have applied the thing acquired ... for a credible purpose". [paragraph 34 of decision] The Tribunal found the application of the acquisitions during the relevant period was entirely for a non-creditable purpose. Whilst Deputy President Hack accepted that the holding company held the intention to sell at some time in the future, he did not regard the holding of that intention, without more, as amounting to an application of the goods and services. [paragraph 35 of decision]

ATO view of decision:
Between the date of the objection decision and the hearing of the application by the AAT, the Tax Office revised its view with respect to the determination of adjustments for changes in extent of creditable purpose relating to new residential premises. In accordance with the revised view set out in GSTR 2009/4 the Tax Office now accepts that an acquisition can be applied to some extent for a creditable purpose, whilst concurrently being applied to some extent for a non-creditable purpose. The Tax Office also now accepts that the holding of something for the purpose of sale is an application of the thing for the purposes of Division 129 of the GST Act. | The decision is consistent with the Tax Office view in GSTR 2009/4 that an intention to sell new residential premises in the future, on its own, does not mean that the new residential premises are being held for the purpose of sale and will not constitute an application of the new residential premises for the creditable purpose of sale, for the purposes of Division 129 of the GST Act. It was not necessary for the Tribunal to consider whether the position would be different where attempts are made to sell a property contemporaneously with the rental of the property, as that was not the case in this matter (see GSTR 2009/4, paragraphs 48-57).

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: A New System (Goods and Services Tax) Act 1999 Division 129
Subject references: Change in extent of creditable purpose