Private ruling: GST and repairs to residential premises
Published: February 2012

Ruling: Q1: 1. Are you entitled to claim input tax credits (ITCs) for GST included in the cost of repairs to your residential premises where, under the Residential Tenancy Agreement, the tenant is liable to reimburse you for the cost of those repairs? 2. Are you required to remit GST in respect of the reimbursement of the cost of those repairs received from the tenant? | A1: 1. No you are not entitled to claim input tax credits (ITCs) for GST included in the cost of repairs to your residential premises where, under the Residential Tenancy Agreement, the tenant is liable to reimburse you for the cost of those repairs. 2. No, you are not required to remit GST in respect of the reimbursement of those repairs received from the tenant.

Relevant facts and circumstances: You are the landlord of residential premises. You are registered for GST. You have provided a copy of a Residential Tenancy Agreement (the Agreement). The Agreement provides that the Tenant must not intentionally or recklessly cause or permit damage to the Premises, Neighbour's property, Common Areas, etc. The Agreement also provides that the Tenant shall reimburse to the Landlord any costs or damages that may be incurred by the Landlord arising from a breach of any of the Tenant's obligations under this Agreement. You state that the tenants have the opportunity to remedy such damage themselves, in which case there is no charge by you. Where a tenant does not remedy the damage, you engage a contractor to repair the damage and pay the contractor. The contractor charges GST on the tax invoices issued to you. You then request reimbursement of the repair costs (GST inclusive) from the tenant in accordance with the Agreement.

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 11-20 | 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 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-10

Reasons for decision: Detailed Reasoning - Question 1:: Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to input tax credits for its creditable acquisitions. Pursuant to section 11-5 of the GST Act, an entity makes a creditable acquisition if: a) the acquisition is made solely or partly for a creditable purpose; and b) the supply to the entity is a taxable supply; and c) the entity provides or is liable to provide consideration for the supply; and d) the entity is registered or required to be registered. The meaning of 'creditable purpose' is discussed in section 11-15 of the GST Act which states: 11-15 Meaning of creditable purpose (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. (3) An acquisition is not treated, for the purposes of paragraph (2)(a) , as relating to making supplies that would be * input taxed to the extent that the supply is made through an * enterprise , or a part of an enterprise, that you * carry on outside Australia. Under paragraph 11-15(2)(a) of the GST Act, an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. Division 40 of the GST Act deals with supplies that are input taxed. Subsection 40-35(1) of the GST Act provides that a supply of premises by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input-taxed if the supply is of residential premises. "Residential premises" is defined in section 195-1 of the GST Act as land or a building that: a) is occupied as a residence or for residential accommodation; or b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home. Pursuant to the Agreement, you grant the tenant a lease of the "Premises". Premises, is defined in the Agreement as a single residence, or unit title, or a flat in a group of flats. The Agreement obliges you and the tenant to comply with the Residential Tenancy Act. We therefore consider that you make a supply by way of lease of residential premises which is input-taxed supply pursuant to subsection 40-35(1) of the GST Act. In the situation where a tenant is responsible for damages to the property caused by his or her actions, the tenant has not repaired the damage, you engage a contractor to repair the damage, and pay the contractor you make an acquisition of repair services. The supply of those repair services is a taxable supply, you provide the consideration for that supply and you are registered for GST. However, the requirement in paragraph 11-5(a) of the GST Act that you acquire the repair services solely or partly for a creditable purpose is not satisfied because you acquire the services for the purpose of making an input-taxed supply of leasing residential premises. Hence you will not be entitled to input tax credits for any GST included in the cost of those repair services. | Detailed Reasoning - Question 2:: Subsection 7-1(1) of the GST Act states that GST is payable on taxable supplies and taxable importations. Thus you would be liable to remit GST on the reimbursement of repair costs received from a tenant if that reimbursement was consideration for a taxable supply made by you. 'Taxable supply' is defined in section 9-5 of the GST Act: You make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with Australia; and (d) you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Goods and Services Tax Ruling GSTR 2006/9 discusses the meaning of 'supply' and sets out a number of propositions, including Proposition 5: | Detailed Reasoning - Proposition 5: to 'make a supply' an entity must do something: 71. In overseas jurisdictions the term 'supply' has been held to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. The Commissioner picks up this meaning in considering the meaning of supply in the GST Act at paragraph 41 of GSTR 2004/9, a ruling which is about the assumption of liabilities: In adopting the ordinary and natural meaning of the term, 'to furnish or provide', it follows that an entity must take some action to 'make a supply'. This approach is consistent with the use of active phrases throughout the examples of supplies in subsection 9-10(2), such as the normalised verbs: 'a provision'; 'a grant'; 'a creation'; 'a transfer'; 'an entry into'; and 'an assignment'. 72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v. Director of Housing and State of Tasmania (No. 2) ('Shaw') in relation to the payment of a judgment debt. His Honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations. 73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation when the judgment debtor paid the judgment debt. In Shaw it was submitted that it was arguable that upon payment of the judgment sum, the plaintiff released the defendants from their obligation to pay that sum and that such release was a taxable supply within the meaning of the GST Act because the definition of 'supply' in section 9-10 of the GST Act included the release from any obligation. Underwood J rejected that submission (Paragraphs 18 - 19) The obligation of the judgment debtor to pay the judgment sum is extinguished by the act of payment. The extinguishment or release does not depend upon any action on the part of the judgment creditor…However, the Act, s 9-5 opens with the words, ``You make a taxable supply if...'' The verb ``make'' indicates a legislative intention to impose the tax only on voluntary supplies, not upon those supplies that occur without an act of the releasor. In our view your position when a tenant reimburses you for the cost of repairs pursuant to the Agreement is analogous to the position of the judgment creditor in Shaw when the judgment debtor paid the judgment debt, i.e. you do not 'make' a supply for GST purposes because you do not do any act or thing to extinguish the obligation owed to you by the tenant pursuant to the Agreement. As you do not make a supply you do not make a taxable supply and you are not liable to remit GST.

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