Private ruling: GST and employee accommodation
Published: January 2015

Ruling: Q1: Are you entitled to GST input tax credits on the cost of construction of employee accommodation under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: No.

Relevant facts and circumstances: You are registered for GST. You operate a farming enterprise in Australia, where livestock are grazed. Due to the size of the operation, you are in the process of engaging a full-time employee to assist you in running your farming enterprise. To this end, you are constructing a new residential dwelling on the property to house the employee. The first preliminary payment in relation to the construction of the new home has been made. A subsequent preliminary payment was also made and actual construction has commenced. Construction is expected to be finalised this year with a total cost of approximately $xxx. In addition to this, there will be a cost of around $xx for a solar electricity system to supply power to the new dwelling, as there is no mains electricity supply servicing the property The property is located approximately xxx kilometres from the nearest township and approximately xxx kilometres from the nearest large population centre. Given the distance from alternative accommodation to station properties like yours, it is industry norm that employees live 'on-property' and that the employer provides suitable accommodation for the employee. The employee, who is not related to you, will not be paying rent for their accommodation.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Detailed Reasoning - Are you entitled to GST input tax credits on the cost of construction of employee accommodation?: Under section 11-20, an entity is entitled to claim input tax credits for creditable acquisitions that it makes. Section 11-5 provides that an acquisition is creditable where all of the following conditions are met: • the acquisition is made solely for a creditable purpose • the supply of the thing to the recipient was a taxable supply • the recipient provides or is liable to provide consideration for the supply, and • the recipient is registered or required to be registered for GST. Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature. You are constructing a house that will be used by your employee for residential accommodation. Subsection 40-35(1) states: A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (a) the supply is of *residential premises (other than *commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. The term residential premises is defined in section 195-1 to mean land or a building that: • is occupied as a residence, or • is intended to be occupied, and is capable of being occupied as a residence. The house meets the definition of residential premises. Therefore, it is necessary to consider if your supply of the house meets the requirements of section 40-35 to be input taxed. The precondition of section 40-35 is that the supply of premises is by way of lease, hire or licence. 'Licence' is not defined in the GST Act. Therefore, it takes its ordinary meaning. The Macquarie Dictionary definition of licence includes 'formal permission or leave to do or not to do something'. Your granting of permission for your employee to use the premises meets this definition of licence. Accordingly, your supply of housing accommodation, being a licence to occupy a residential premise, is an input taxed supply under section 40-35. As explained in paragraph 59 of Goods and Services Tax Ruling GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits , this is so regardless of whether the employee is actually charged a rental fee. Whilst consideration is required for there to be a taxable supply under section 9-5, consideration is not an essential element for there to be an input taxed supply under section 40-35. Further, on the facts supplied, your supply of the premises is not a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. Nor is it a supply of commercial accommodation. Therefore, your supply of the residential premises will be input taxed in accordance with section 40-35. Accordingly, the acquisitions that you make in respect to these premises are not creditable acquisitions under section 11-5. Therefore, you will not be able to claim an input tax credit under section 11-20.

Reasons for decision: Note: In this ruling, unless otherwise stated, | • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | • all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au | • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act