Private ruling: GST and section 38-250 of the GST Act
Published: November 2013

Ruling: Q1: Are you entitled to claim input tax credits (ITC) on costs for the construction of a residential development? | A1: Yes

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 an endorsed charity and is registered for goods and services tax (GST). · You are endorsed to access GST concessions. · You provide housing, health services and promote the welfare of relevant persons. · You obtained a grant from a Government department to construct a residential complex (properties). GST was charged on these development costs. · The developer/builder is not a related entity. · The property is designed for residential occupation. The intended use for the premises is described in the Development Application as "xxx Multiple Dwelling Units". · You have received a market valuation of the properties from a Real Estate Agent showing the weekly rental of the properties assessed as being $xxx per week based on similar properties within the locality. · You have received a market valuation of the properties from another real Estate Agency showing the weekly rental of the properties assessed as being between $xxx and $xxx per week based on similar properties within the locality. · You advise you will charge less than 75% of the GST inclusive market value of the supply as follows: …Based on a single aged pension of $xxxx our Dept of housing rent calculator has worked out that the rent for each unit at xxxxxxx will be $xxx per fortnight.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Section 11-5 | Section 11-15 | Section 38-250

Reasons for decision: Summary: As your supply of residential premises is GST-free, you are entitled to ITC on acquisitions to make the supply. | Detailed Reasoning - Detailed reasoning: An entity is entitled to the input tax credit for any creditable acquisition that it makes. Section 11-5 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act) states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered, or *required to be registered. Note: the * denote a defined term within the GST Act. 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 the thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature. Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. Subsections 11-15 (1) and (2) of the GST Act provides that: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise. (2) However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. | Detailed Reasoning - Creditable acquisition: In your case you are acquiring the goods and services from the Developer and other suppliers in the construction of the residential complex in the course of your enterprise for the making of residential supplies. The property is designed for residential occupation. You advise that the intended use for the premises is residential, and the land use is described in the Development Application as "xxx Multiple Dwelling Units". The construction of the residential complex is not of a private or domestic nature. However, section 11-5 of the GST Act denies an input tax credit where an acquisition would relate to making supplies that would be input taxed. (a) The supply of residential accommodation is normally input taxed, however section 38-250 of the GST Act and section 9-30 of the GST Act may apply to make the supply GST-free, thereby entitling you to an input tax credit. These are discussed further below. (b) You have advised that GST was charged for the supply of the construction of the residential units therefore the supply of these goods and services will be taxable. (c) You have advised that you were liable to provide consideration for the goods and services provided by the builder; and (d) You are registered for GST. Accordingly you meet all the criteria for a creditable acquisition with the exception of "(a) you acquire anything solely or partly for a *creditable purpose" which is considered below. | Detailed Reasoning - GST-free or Input Taxed: As mentioned above, the acquisition will be a creditable acquisition if it relates to making supplies that are GST-free (but will not be a creditable acquisition if it relates to making supplies that are input taxed). A supply of residential accommodation is normally input taxed, however where a supply is both GST-free and input taxed, Section 9-30 of the GST Act operates to treat the supply as GST-free. Subsection 9- 30(1) of the GST Act states: GST-free (1) A supply is GST-free if: (a) it is GST-free under Division 38 or under a provision of another Act; or (b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a). Where a supply is both GST free and input taxed the supply is treated as being GST free pursuant to subsection 9-30(3) of the GST Act. Subsection 9- 30(3) of the GST Act states: | Detailed Reasoning - Supplies that would be both GST-free and input taxed: (3) To the extent that a supply would, apart from this subsection, be both *GST-free and *input taxed: (a) the supply is GST-free and not input taxed, unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed; or (b) the supply is input taxed and not GST-free, if that provision requires the supplier to have so chosen In your case with regards to subsection 9-30(3)(a), you are not required to choose for your rental supplies to be input taxed. | Detailed Reasoning - Nominal consideration: Subsection 38-250(1) states that the supply will be GST-free if: (1) A supply is GST-free if (a) the supplier is an endorsed charity, a gift-deductible entity or a government school; and (b) the supply is for consideration that: (I) if the supply is a supply of accommodation - is less than 75% of the GST inclusive market value of the supply; or (ii) if the supply is not a supply of accommodation - is less than 50% of the GST inclusive market value of the supply. You have advised that you will charge less than 75% of the GST inclusive market value of the supply and have obtained a number of market value comparisons to support this fact. The market value comparisons indicate that the rent that you will charge for your supplies of residential accommodation will be for consideration that is less than 75% of the GST inclusive market value. Therefore based on the facts provided, your supply of the residential accommodation will be GST-free under section 38-250 of the GST Act as your supply will be for consideration that is less than 75% of the GST inclusive market value. Please note: You will need to monitor the use of the property and your pricing structure to ensure that your rents do not exceed consideration that is less than 75% of the GST inclusive market value. | Detailed Reasoning - In conclusion: As you have determined that your supply of residential accommodation is GST-free under section 38-250 of the GST Act, all the requirements of Section 11-5 of the GST Act has been met and you will be making creditable acquisitions. Section 38-1 of the GST Act provides that: If a supply is GST-free, then: · no GST is payable on the supply; · an entitlement to an input tax credit for anything acquired or imported to make the supply is not affected. Therefore, you are entitled to ITC for things acquired to make the GST-free supply of residential accommodation. In your case you are entitled to ITC on the costs for the construction of residential development.

Disclaimer: You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. | The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. | The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions. | GSTR 2006/4: Determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.