Private ruling: Creditable acquisitions
Date of advice: 30 April 2019
Published: June 2019
Ruling period: 1 June 2018 to 30 June 2020
Date scheme commenced: 1 June 2018

Ruling: Q1: Are you entitled to input tax credits under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for acquisitions you make in relation to the demolition and rebuilding of a commercial building? | A1: Yes, you are entitled to input tax credits under section 11-5 of the GST Act for acquisitions you make in relation to the demolition and rebuilding of the commercial building.

Relevant facts and circumstances: You conduct an enterprise of leasing commercial property. You have an ABN and have been registered for GST since July 2000. You acquired a property comprising of a commercial building. The property is zoned “General Industrial”. The property was acquired with three existing tenants. The property has been leased from the time of its acquisition and GST on the rent has been remitted to the ATO on a regular basis. You made a decision to demolish the commercial building on the property and construct a replacement commercial building on the land. Your intention was that the new commercial building would continue to be supplied for rent with the suitability and diversity of tenants improving by making it more desirable than the competitor buildings. You entered into a formal agreement with a construction company to undertake the demolition and replacement of the commercial building. The construction company has accordingly issued you with tax invoices in relation to work they have completed which you have paid as the work progressed. You estimate the construction of the new commercial building to be completed by the end of May 2019.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 ● section 11-5 | ● section 11-15 | ● section 11-20

Reasons for decision: Summary: Section 11-20 of the GST Act provides that you are entitled to input tax credits for any creditable acquisition that you make. Section 11-5 of the GST Act sets out what is a creditable acquisition. A creditable acquisition is made if you make an acquisition for a creditable purpose, the supply to you is a taxable supply, you provide consideration for the supply and you are registered or required to be registered. Under section 11-15 of the GST Act, you acquire a thing for a creditable purpose to the extent that it is acquired in carrying on your enterprise and the acquisition relates to making supplies that would not be input taxed o r private or domestic in nature. You conduct an enterprise of leasing commercial property. The supply you make in relation to your enterprise of leasing commercial property is a taxable supply. The demolition of the existing commercial building and the construction of the new commercial building is undertaken as part of your said enterprise. When you lease the new commercial building on completion of its construction, you will be making a taxable supply. Therefore, as your acquisitions in relation to the demolition and construction of the new commercial property meet all the requirements of sections 11-5 of the GST Act, you are entitled to input tax credits in relation to these acquisitions.