Private ruling: GST: 4 year rule and Division 129
Published: September 2011

Ruling: Q1: Did you, prior to 30 June 2006, commence to hold the assets for the purpose of sale? | A1: Yes | Q2: Did you, within 4 years of the conclusion of the tax period ended 30 June 2006, notify the Commissioner of your entitlement to claim a decreasing adjustment for that tax period as a result of having commenced to hold the asset for the purpose of sale? | A2: Yes | Q3: If the answer to questions 1 and 2 are yes, are you entitled to claim a decreasing adjustment for the tax period ending 30 June 2006? | A3: Yes | Q4: Does section 129-25 of the A New Tax System (Goods and Services Tax) 1999 (GST Act) cause the tax period ended 30 June 2007 to become the last adjustment period for certain acquisitions made by you prior to 30 March 2004? | A4: Yes, the tax period ended 30 June 2007 is the last adjustment period for those acquisitions whose last adjustment period, but for the sale of the asset, would have been tax period ended 30 June 2008 or later.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are registered for GST. You are the GST group reporter for a joint venture of various entities. In 2005, you were in the specified business. At the time that you constructed the assets, you intended to and indeed did use the assets to make input taxed supplies. You did not claim input tax credits related to the construction of the assets, due to the supplies consisting of the provision of input taxed supplies. At a later date, you decided to sell the assets. The assets were sold in February 2007. You contend that, by 30 June 2006, you had formed the intention to sell the assets. In support of this, you attached copies of the following documents: · the draft of the Information Memorandum (dated pre 30 June 2006) prepared to market your assets for sale · the Information memorandum states "The Memorandum is for use solely by selected parties interested in acquiring the assets that are being offered for sale." · it also specifies the method of achieving the sale · an engagement letter (dated pre 30 June 2006) engaging an external organisation to perform a review of certain financial disclosures made in the draft of the Information Memorandum · an internal memorandum from the external organisation (dated pre 30 June 2006) outlining the key findings arising from their review of the draft Information Memorandum You further contend that, within 4 years of the conclusion of the tax period ended 30 June 2006, you notified the Commissioner of your entitlement to claim a decreasing adjustment for that tax period, as a result of you having commenced to hold the assets for the purpose of sale. In support of this, you have referred to correspondence between yourself and the ATO including: · your letter headed "Notification of Entitlement to GST Refund" dated June 2009 (the Original Notification) · your letter headed "Request for GST Assessment" dated 30 June 2009 (the Original Request for Assessment) (copy supplied) · your letter headed "Notice of Objection to Purported Assessment of Indirect Tax for the specified tax period dated April 2010 (the Notice of Objection to the Purported Assessment) (copy supplied) · item 3 of the Notice of Objection to the Purported Assessment states that the Notice of Assessment is incorrect, to the extent that it does not take into account a decreasing adjustment that arises under Division 129 of the GST Act · item 4.2 states "In the present circumstances, as your change in use was formally confirmed when the disposal of the retirement villages to the Purchaser was settled in February 2007, the last adjustment period applicable is the adjustment period ended 30 June 2007..." · the Notice of Objection to the Purported Assessment does not specifically refer to the tax period ended 30 June 2006. · your meeting with an officer of the ATO in May 2010 · your letter headed "Objection to assessment of indirect tax" dated June 2010 (the Objection) You also contend that, as a consequence of the above, you are entitled to claim a decreasing adjustment for the tax period ending 30 June 2006.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) 1999 Division 129

Reasons for decision: Summary: Goods and Services Tax Ruling 2009/4: new residential premises and adjustments for changes in extent of creditable purpose (GSTR 2009/4) explains the Commissioner's view on when an adjustment for a change of creditable purpose arises under Division 129 of the GST Act. Paragraphs 44 to 47 of GSTR 2009/4 explain the factors that demonstrate that new residential premises are being held for sale. The relevant principles are summarised as follows: An objective assessment of the facts and circumstances is required. This requires a weighing up of the evidence that supports a finding that the premises are being held for sale; There must be satisfactory evidence to support a conclusion that the premises were held for sale. A single piece of evidence may not be sufficient where there is other evidence to suggest a contrary purpose; The following factors would generally evidence that the premises are being held for sale (although any one factor may not be sufficient on its own): · marketing or listing of the premises for sale · income tax treatment of the development as trading stock · finance documents (including loan application supporting the planned sale of the premises) · business plans, feasibility studies or minutes of meetings supporting the holding of the premises for sale · accounting reports and financial statements supporting the holding of the premises for sale; · past activities of the entity in carrying on an enterprise of selling new residential premises; · actual arms length sales of some of the listed units · the period of time- if the premises are intended to be sold within a short timeframe this supports a finding that they were held for sale. Section 9.5 of the Information Memorandum (dated pre 30 June 2006), states "It is the Vendor's intention to affect the sale of the assets by..... The Commissioner consider that this, in combination with the engagement letter (dated pre 30 June 2006) engaging the external organisation to perform a review of certain financial disclosures made in the draft of the Information Memorandum and the internal memorandum from the external organisation (dated June 2006), is sufficient evidence that you, prior to 30 June 2006, commenced to hold the asset for the purpose of sale. Miscellaneous Taxation Ruling MT 2009/1: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (MT 2009/1) sets out the Commissioner's views on what constitutes sufficient notification by an entity to the Commissioner. Paragraph 11 of MT 2009/1 notes that no specific form is required for a notification for the purposes of section 105-55. Paragraph 12 explains that valid notices include an objection that asserts that the entity has an entitlement and: · describes the nature of the entitlement to a refund, other payment or credit, which is sufficient to bring to the Commissioner's attention the basic factual and legal basis for the entitlement; and · states the tax period(s) which the entitlement relates. Paragraph 44 further explains that, where the notification identifies a discrete error over a period of time, it is not always necessary to separately list each tax period in that period of time. Your objection was based on the fact that the asset, initially held for the purpose of making input taxed supplies, was ultimately sold. You contended that there was sufficient evidence that, by 30 June 2005, the assets were being held for the purpose of sale. On this basis, you advised that you were entitled to a decreasing adjustment, under Division 129 of the GST Act, for the tax period ended 30 June 2005. You further advised that, as the assets were sold (settled) in February 2007, the last adjustment period applicable was the tax period ended 30 June 2007. Although the objection did not specifically state that an adjustment would also arise in the tax period ended 30 June 2006, Division 129 of the GST Act operates in such a way that the tax period ended 30 June 2006 must be included. As we received the notice of objection in April 2010, you have notified the Commissioner of your entitlement to an adjustment, within 4 years of the conclusion of the tax period ended 30 June 2006. Paragraph 8 of GSTR 2009/4 explains that the creditable purpose tests in sections 11-15 and 15-10 of the GST Act focus on an entity's planned use of the acquisition. Your planned use of the assets was to make input taxed supplies. In accordance with this planned use, you did not claim input tax credits on the acquisitions associated with their construction. Paragraph 8 further explains that the extent to which an acquisition is applied to a creditable purpose may be different to the planned use. In such cases, an adjustment for this change in extent of creditable purpose may arise in accordance with Division 129 of the GST Act. The purpose for which the assets were held changed from that of making input taxed supplies, to a dual purpose of making input taxed supplies and of making taxable supplies of new residential premises. This change occurred prior to 30 June 2006 and the assets were sold in February 2007. Therefore, you are entitled to a decreasing adjustment in the tax period 30 June 2006. As explained in paragraph 14 of GSTR 2009/4, Division 129 of the GST Act (section 129-20) provides for adjustments in relation to things in tax periods that are adjustment periods, with the number of periods being determined by the GST-exclusive value of the acquisition, as per the following table: GST-exclusive value of the acquisition Adjustment periods $5,000 or less Two $5,001 to $499,999 Five $500,000 or more Ten For larger acquisitions, this can create a problem in that these adjustment periods could extend well beyond the date of disposal of the asset. Section 129-25 removes this problem by bringing forward the final adjustment period. As you disposed of the assets in February 2007, for those acquisitions that would otherwise have a final adjustment period ending 30 June 2008 or later, section 129-25 ensures that the final adjustment period is the tax period ending 30 June 2007. It does not affect those acquisitions which already have a final adjustment period which is a tax period ending 30 June 2007 or earlier.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.