Private ruling: GST and Division 129 adjustments
Published: April 2013

Ruling: Q1: Do you have an adjustment under Division 129 in relation to your acquisition of a retirement village? | A1: Yes | Q2: If so, is the methodology adopted, appropriate to calculate the adjustment? | A2: No, therefore you are required to review and amend the adjustment you made.

Relevant facts and circumstances: You acquired an existing retirement village (RV) complex as a GST-free going concern. The Contract for Sale and Purchase of the Land for the RV was settled in ddmmyyy. The RV consists of x fully furnished villa units which include linen, crockery and cutlery. Each unit is intended for occupation by a single person and contains a bedroom bathroom, lounge and kitchenette. Tenants pay an amount set at a dollar equivalent of X% of the aged pension plus X% of rental assistance payable to a person in receipt of a pension. Tenants pay their own electricity, and phone and a cleaning fee on exit. There are no rental bonds or entrance fees. In exchange for the payment of this amount, tenants receive accommodation and 3 meals per day. They are also provided with heavy laundry services and access to the communal facilities which includes a mini library, television and lounge furniture. Following an ATO review of your activities, you were found to be making a mixture of input taxed and taxable supplies: · Taxable supplies consisted of supplies of meals, on-site management, cleaning, organization of social activities and laundry services and · Input taxed supplies were of supplies of accommodation in residential premises. The ATO made a finding that the proportions were X% taxable and Y% input taxed supplies. Your Business Activity Statements (BAS) in regards to your ongoing supplies were amended to reflect these findings. Further, an increasing adjustment was made under Division 135 to reflect the extent to which the RV would be used to make input taxed supplies. As a consequence, a Division 135 increasing adjustment of $X was made on your BAS lodged for the period ended ddmmyyyy. You did not make any Division 129 adjustments in the years ending 30 June 200X to 30 June 200Y as you assessed that there was no variation in your application of the retirement village. On ddmmyyyy, you made a decision that you would dispose of the RV. You advised that you did not make a Division 129 adjustment in the following June, because you were unsure of what form the sale would take. On ddmmyyyy you entered into a contract to sell the retirement village as a GST-free supply of a going concern for $X. The sale settled on ddmmyyyy. You lodged an amendment request for your June Z BAS to decrease the GST payable by the same amount as you initially paid out as an increasing adjustment.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 11-15, | A New Tax System (Goods and Services Tax) Act 1999 135-5 and | A New Tax System (Goods and Services Tax) Act 1999 129-5.

Reasons for decision: Detailed Reasoning - Q 1 Application of Division 129: The amount of the input tax credit to which an entity is entitled depends on the extent to which the acquisition or importation is for a creditable purpose. Your initial entitlement to input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (and your initial adjustments under section 135-5 of the GST Act ) are calculated by reference to your intended application of the thing acquired to making supplies that are neither taxable supplies nor GST-free supplies. Under section 135-10, Division 129 of the GST Act will apply to your acquisition. Therefore, you are required to monitor the extent to which your acquisition continues to be applied to making supplies that are neither taxable supplies nor GST-free supplies. Your initial increasing adjustment under section 135-5 of the GST Act was calculated on the basis that Y% of your supplies would be neither taxable supplies nor GST-free supplies. We have not reviewed the issue of whether there has been a change in application over the period of time during which you have operated the retirement village. Section 129-20 of the GST Act explains adjustment periods and specifies the number of adjustment periods that apply in particular circumstances. You acquired the village for $X in mmyyyy. Therefore, you are required to monitor your use of the RV for 10 adjustment periods. In March 20XX, you sold the RV. Therefore, during your period of ownership of the RV, you have applied the RV to the purposes of making input taxed supplies of accommodation, taxable supplies of various services to the residents, and the sale as a GST-free going concern. As a consequence of the sale, the extent to which your acquisition continues to be applied to making supplies that are neither taxable supplies nor GST-free supplies, from date of acquisition until date of disposal, has changed. Therefore, you will have an adjustment in accordance with Division 129 of the GST Act. | Detailed Reasoning - Q 2 Methodology: You have calculated that under Division 129 of the GST Act, you are now entitled to a decreasing adjustment for the full amount of your initial increasing adjustment made in accordance with section 135-5 of the GST Act. You did not set out the detail of your methodology. Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose . (GSTR 2006/4) provides guidance on how to determine the extent to which an acquisition is applied for a creditable purpose and the effect of any later change to that extent of creditable purpose. In your application, you stated that your methodology is in accordance with paragraph 92 of GSTR 2006/4, ultimately resulting in a decreasing adjustment for the full amount of the initial increasing adjustment. However, your claim for a decreasing adjustment for the full amount of your initial increasing adjustment could only be correct where, for the entire period that you held the RV, it has not been used to make any supplies that are neither taxable supplies nor GST-free supplies. On the facts supplied, you have made supplies that are neither taxable supplies nor GST-free supplies. Therefore, the methodology you have adopted to calculate your adjustment is not appropriate. You are required to review and amend the adjustment you made.