Private ruling: GST and GST credits in relation to the supply of GST-free long term accommodation
Date of advice: 26 August 2016
Published: October 2016

Ruling: Q1: Can a charity choose to use the Benchmark Market Values (BMVs) set out in the GST and non-commercial rules-benchmark market values fact sheet (fact sheet) in relation to supplies of long term residential accommodation for the purposes of section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the charity can choose to use the BMVs set out in the fact sheet in relation to supplies of long term residential accommodation. | Q2: Is the charity entitled to claim input tax credits (ITC) on costs (acquisitions) for the ongoing maintenance and operation of long term residential accommodation? | A2: Yes, to the extent that the acquisitions relate to the supply of the long term residential accommodation made by the charity and satisfy the requirements of a creditable acquisition under section 11-5 of the GST Act including that the acquisitions are for a creditable purpose, the charity is entitled to ITCs. | Q3: Is the charity entitled to claim ITCs on costs (acquisitions) relating to the construction of residential properties subsequently leased for long term accommodation where there are changes in creditable purpose? | A3: The charity is entitled to ITCs for acquisitions of construction services relating to the supply of accommodation to the extent the acquisitions are for a creditable purpose and otherwise satisfy the requirements of a creditable acquisition. Therefore, the acquisitions have to relate to making a GST-free or taxable supply to be for a creditable purpose and not an input taxed supply. To the extent that the acquisitions of construction services relate to a supply of accommodation that was not initially GST-free but was an input taxed supply then the acquisitions are not initially for a creditable purpose. If at a later date the supplies of accommodation became GST-free there has been a change in creditable purpose and the charity has an adjustment under Division 129 of the GST Act to the extent of the change in creditable purpose (see detailed reasoning). | Q4: Does the charity have a time limit to claim ITCs on creditable acquisitions which have not previously been claimed in its Business Activity Statements (BAS) already lodged? | A4: Yes.

Relevant facts and circumstances: The charity (you) is registered for goods and services tax (GST) and is endorsed for both income tax and GST concessions and is registered as a charity with the Australian Charities and Not-for-Profit Commissions (ACNC). Your activities involve delivering long term residential accommodation to eligible tenants in residential premises. You are funded to deliver long term residential accommodation under various government funded programs (Programs). You paid for the things (maintenance/operation services) that you acquired relating to the supply of long term accommodation in residential properties. Those maintenance/operation services were inclusive of GST and taxable supplies to you for which you hold tax invoices. Eligible tenants enter into a residential tenancy agreements with you. You treated the supply of the long term residential accommodation as input taxed supplies of residential premises. Accordingly, you did not claim ITCs for the things (maintenance/operation services) that you acquired relating to the supply of the long term accommodation. The rent charged for the supply of accommodation in the properties was and continues to be less than 75% of the GST inclusive market value of the supply of the housing as measured using the BMVs set out in the fact sheet. You contracted a developer/builder to construct a residential building on land containing separate units/apartments on land gifted to you and which you own. You made progress payments to the developer/builder which were inclusive of GST. You entered into tenancy agreements with eligible tenants which identify you as the lessor of each of the units/apartments. In order to receive an incentive to build and make available accommodation to eligible tenants under the Programs you were required to obtain a written valuation of the market value rent to be undertaken by a registered valuer for each apartment when the apartments first became available for rent under the Program. You treated the supply of accommodation by way of lease in the units/apartments to eligible tenants as input taxed supplies of residential premises. Accordingly, you did not claim ITCs for the acquisition of construction services supplied to you by the builder/developer which related to the subsequent supply of the units/apartments. You hold tax invoices in relation to acquisitions of the constructions services you made. You determined that currently the consideration for the supply of the apartments by way of lease continues to be less than 75% of the GST inclusive market value of the supply of the housing as measured using the BMVs set out in the fact sheet. Although the rent charged for two of the units/apartments have been less than 75% of the value as measured using the BMVs set out in the fact sheet since the first lease was initiated the rent for the other units did not fall below 75% of the BMVs until a later date.

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 subsection 38-250(1) | A New Tax System (Goods and Services Tax) Act 1999 Division 129

Reasons for decision: Detailed Reasoning - Legislation: Section 11-20 of the GST Act provides that you are entitled to ITCs for any creditable acquisition you make. An acquisition is a creditable acquisition under section 11-5 of the GST Act if: • you acquire anything solely or partly for a creditable purpose • the supply of the thing to you is a taxable supply • you provide, or are liable to provide consideration for the supply, and • you are registered or required to be registered for GST. You were and continue to be registered for GST and you undertake activities that involve supplying long term residential accommodation to eligible tenants. You provided consideration for taxable supplies of things made to you including maintenance/operation and construction services in carrying on your enterprise. Your entitlement to ITCs will therefore turn on whether and to what extent the acquisitions were made for a creditable purpose. Adjustments under Division 129 of the GST Act may also arise where there have been changes in creditable purpose. Creditable purpose Subsections 11-15(1) and (2) of the GST Act provide that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise unless the acquisition relates to making supplies that would be input taxed or for private or domestic nature. Input taxed residential rent The supply of residential premises by way of lease, hire or licence is input taxed under subsection 40-35(1) of the GST Act. You treated the supply by way of long term accommodation in the residential properties as input taxed supplies and accordingly did not claim ITCs for acquisitions relating to making those supplies because they were not made for a creditable purpose. If, however, those supplies of accommodation are found to satisfy the requirements of a GST-free supply of accommodation, the acquisitions made relating to making those supplies would be for a creditable purpose. In such circumstances all the requirements under section 11-5 of the GST Act for a creditable acquisition would be satisfied, giving rise to an entitlement to ITCs. | Detailed Reasoning - Question 1 Can you choose to use the BMVs set out in the fact sheet rather than obtaining an independent valuation?: Subsection 38-250(1) of the GST Act relevantly provides that supplies of accommodation made by an endorsed charity are GST-free where: • the supply is for consideration that: • if the supply is a supply of accommodation - is less than 75% of the GST inclusive market value of the supply; or • if the supply is not a supply of accommodation - is less than 50% of the GST inclusive market value of the supply. The Charities Consultative Committee Non-Commercial activities of charities, cost of supply and market value tests (CCC document) provides market value guidelines for the purposes of applying subsection 38-250(1) of the GST Act. The CCC document explains that in determining the market value of a supply, a charity can apply the following successive tests: • the same supply test, if no same supply exists then • similar supply test, if no similar supply exists then • another methodology approved by the Commissioner to calculate the market value of the supply. The CCC document also refers to the fact sheet which sets out BMVs in relation to certain supplies of accommodation, meals and employment services. The BMVs provide an alternative to the general rules outlined in the CCC document and states at paragraph 40 hat Those charities eligible to use the benchmarks for their supplies will only need to use the above successive tests to work out the market values if they choose not to use the benchmarks. The accommodation benchmark rates in the fact sheet are acceptable BMVs for determining the market value for the supply of long term residential accommodation. As an endorsed charity and a provider of long term accommodation you meet the requirements in relation to the type of supplies for which you would be eligible to use the BMVs set out in the fact sheet for the purposes of applying subsection 38-250(1) of the GST Act. Accordingly, you can choose to use the BMVs set out in the fact sheet to determine the market value for the supply of long term residential accommodation rather than obtaining an independent valuation. Question 2 Are you entitled to ITCs for acquisitions of ongoing maintenance and operation services in relation to the long term supply of accommodation? On a preliminary assessment, the rent charged for the supply of the properties is less and continues to be less than 75% of the GST inclusive market value of the supply of the properties as measured using the BMVs set out in the fact sheet that is currently available. The BMVs set out in the fact sheet are updated annually. New BMVs take effect from 1 January each year. Where your preliminary assessment proves to be correct, your supply of long term accommodation in the properties satisfies the requirements for a GST-free supply of accommodation under subsection 38-250(1) of the GST Act. Where the acquisitions of maintenance and operation services made by you relate to the supply of long term accommodation in the properties that are GST-free supplies they will be for a creditable purpose and the requirements for a creditable acquisition under section 11-5 of the GST Act will be satisfied. Accordingly, this will give rise to an entitlement to ITCs in relation to the acquisition of maintenance and operating services made by you. The amount of the ITCs for creditable acquisitions is the amount equal to the GST payable on the supply of the thing acquired. However the amount of the ITC is reduced if the acquisition is only partly creditable. Question 3 Are you entitled to ITCs for acquisitions made in relation to the construction of the apartments? You acquired things from the builder/developer that were taxable supplies to you in the constructions of the residential units/apartments. Where the consideration for the supply of long term accommodation in the apartments is less than 75% of the BMVs set out in the fact sheet for the relevant period, that supply you made, satisfies the requirements for a GST-free supply of accommodation under subsection 38-250(1) of the GST Act. If that is the case, then acquisitions of construction services made by you to the extent they relate to your GST-free supply of long term accommodation in the apartments are for a creditable purpose. To the extent you acquire the construction services for a creditable purpose and the requirements for a creditable acquisition under section 11-5 of the GST Act are satisfied an entitlement to ITCs arises under section 11-20 of the GST Act. However, this may not be the case where the accommodation in the apartments did not satisfy the requirements of a GST-free supply for the whole of the period. Change in creditable purpose If your actual use of a thing acquired (in this case constructions services) varies over time from your planned use, there is a change in the extent of creditable purpose. In this regard you advised that the consideration for the supply of some the apartments did not fall below 75% of the BMVs set out in the fact sheet until a later date. Those circumstances give rise to a change in creditable purpose where at a later date the acquisitions of construction services relate to a supply of accommodation that is for a creditable purpose (GST-free). Adjustments for changes in the extent of creditable purpose are subject to the provisions of Division 129 of the GST Act. Adjustments under Division 129 of the GST Act are made in subsequent tax periods called adjustment periods. The number of adjustment periods you have for an acquisition depends on the GST exclusive value of the acquisition and whether it relates to business finance. If you are required to apportion your creditable purpose you must do so by applying a method that is fair and reasonable in the circumstances of each case. For the purpose of Division 129 of the GST Act, each of the progress payments is treated as a separate acquisition. This means, that adjustment periods will apply to each progress payment and the first adjustment period for each progress payment is the tax period ending 30 June which commences at least 12 months after the end of the tax period to which the progress payment is attributable. For example if there was a progress payment made in August 2013 your first adjustment period is the quarterly tax period ending 30 June 2015, if there was a progress payment made in August 2014 the first adjustment period is the quarterly tax period ending 30 June 2016. Goods and Services Tax Rulings GSTR 2000/24 and GSTR 2006/4 explain, amongst other things, what the adjustment periods for acquisitions are and how to work out the amount of an adjustment for an acquisition in an adjustment period. Goods and Services Tax Ruling GSTR 2006/3 and GSTR 2006/4 explain methods for determining the extent of creditable purpose. Acquisitions of maintenance and operating services An acquisition in relation to maintenance or operating services relating to the apartments may not satisfy all the requirement of a creditable acquisition including, that the acquisitions relate to a creditable purpose and may need to be apportioned accordingly. Record Keeping You must keep and maintain records that adequately document all transactions and other acts you engage in that are relevant to the acquisition. You should retain records relating to the calculation of adjustments for changes in the extent of creditable purposes. | Detailed Reasoning - Question 4 Cessation of an entitlement to ITCs: ITCs for acquisitions of ongoing maintenance and operation services in relation to the long term supply of accommodation in AH and CH Division 93 of the GST Act puts a time limit on your entitlement to an ITC and provides that you cease to be entitled to an ITC for a creditable acquisition to the extent that the ITC has not been taken into account, in an assessment of a net amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a GST return for the tax period to which the ITC would be attributable under subsections 29-10(1) or (2) of the GST Act (see the ATO publication 'time limits on GST refunds'). Tax periods starting before 1 July 2012 There are some exceptions to the four year time limit for claiming ITCs. For tax periods starting before 1 July 2012 you are still able to claim ITCs for acquisitions beyond four years if, amongst other things: • you notify us or we notify you of your entitlement to the credit • you gave us the notice, or we gave you the notice, within four years of the end of the earliest tax period in which you could have claimed the GST credit- setting aside any requirement to hold a valid tax invoice (subsection 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA)). Section 105-55 of Schedule 1 to the TAA only applies to tax periods starting before 1 July 2012. The notification provided in your ruling application preserved your entitlement to ITCs that would be attributable under subsections 29-10(1) or (2) of the GST Act to the tax periods ending before 1 July 2012 and those ITCs can be included in your current activity statement. Tax periods starting on or after 1 July 2012 With regards to your entitlement to outstanding ITCs for acquisitions relating to maintenance and operational services attributable under subsections 29-10(1) or (2) of the GST Act to tax periods on or after 1 July 2012 you can: • revise/amend your activity statement for the tax period to which the ITC relates before your entitlement ceases or • you can include the ITCs in your next activity statement before your entitlement ceases. For example, an entitlement to an ITC for a creditable acquisition of maintenance which would be attributable under subsection 29-10(1) or (2) of the GST Act to the quarterly tax period ending 30 September 2012 ceases to the extent that the ITC has not been taken into account, in an assessment of net amount during the period of 4 years after the due date for lodgement of the September 2012 activity statement (that is 30 of October 2016 as the due date for the September 2012 activity statement was 29 October 2012). This means that you can include (take into account) the ITCs in your activity statement (assessment of net amount) for the quarterly tax period ending 30 September 2016 and lodge it before 30 October 2016 or alternatively you can revise your activity statement for the tax period to which the ITCs relate (the activity statement for the quarterly tax period ending 30 September 2012) and lodge the revision in sufficient time to allow the processing and finalisation of the revision before 30 October 2016. Similarly, for those ITCs attributable to the quarterly tax period ending 31 December 2012 you can include the ITCs in your activity statement for the quarterly tax period ending 31 December 2016 and lodge it before 1 March 2017 or you can revise your activity statement for the tax period to which the ITCs relate and lodge the revision in sufficient time to allow the processing and finalisation of the revision before 1 March 2017. Record Keeping You must keep and maintain records that adequately document the process and information collected in order to calculate your entitlement to ITCs and in working out the relevant market values which the consideration of the supplies you make is to be compared to.