Private ruling: GST and supply of residential premises
Published: January 2013
Date scheme commenced: You are registered for GST. You entered into a Memorandum of Understanding (MOU) with Entity B to formalize an agreement in relation to the establishment of housing units.

Ruling: Q1: Are you entitled to claim GST credits for the acquisition of real property and construction costs for the construction of housing units? | A1: Yes

Relevant facts and circumstances: You are registered for GST. You entered into a Memorandum of Understanding (MOU) with Entity B to formalize an agreement in relation to the establishment of housing units. Goals and objectives in the MOU are: § To demonstrate a clear commitment to the project by both parties § To acknowledge a commitment to manage the facility and maintain it as at completion for at least X years post construction and § To outline the responsibilities of the parties. Entity B committed to, amongst other things: § Accepting the newly constructed units for the purpose of providing accommodation § Preparing a long term asset management plan § Providing regular ongoing reporting to you for the life of the project and § Providing a one off cash contribution to the project. On ddmmyyyy, you acquired some un-serviced crown lots. The margin scheme was not applied to the supply to you. You hold a tax invoice for the purchase. You plan to develop X units over a period of X years. You plan to undertake the project in two stages. Each unit will have a dining/living area, kitchen, two bedrooms, a study, laundry and 1.5 bathrooms, plus double carport, driveway and own small garden. Communal facilities will include a lawn area with patio, barbecue and possibly a communal shed/storage area. At the completion of construction, you plan to transfer the units and the management of those units to entity B, who will operate the units under the Retirement Village Act. The competed units will not be occupied until you have transferred title. You will not maintain control over the property through the means of caveats or enforceable obligations.

Relevant legislative provisions: Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 40-75 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 195 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision: Summary: Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that you make a creditable acquisition where: § you acquire the thing 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. You are registered for GST and have paid, or will pay, consideration for various acquisitions including the vacant land you acquired to construct the units. Therefore, your purchases to construct your units will be creditable where they are taxable supplies to you and you acquired them for a creditable purpose. We note that: § section 9-5 of the GST Act sets out the requirements for a taxable supply § you must hold a valid tax invoice to claim a GST credit on a creditable acquisitions and § you cannot claim GST credits on the purchase of real property when you acquired that property under the margin scheme. Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that: § you acquire it in carrying on your enterprise § unless the acquisition: o relates to making supplies that would be input taxed or o is of a private or domestic nature. You will make various acquisitions in relation to construction of the units. These acquisitions will be made in the course of carrying on your enterprise of managing your enterprise. These will not be for private or domestic purposes. In addition, the margin scheme was not used to calculate the GST payable on the supply to you of the land. Therefore, you will acquire these goods and services for a creditable purpose. Where your acquisitions were taxable supplies to you, you will be entitled to GST credits, unless your subsequent supply of the units is an input taxed supply. | Detailed Reasoning - Retirement village: You will be supplying residential units and some facilities for the residents. You have advised that entity B will operate the premises as a retirement village under the Retirement Village Act. As stated in section 195-1 of the GST Act, premises will be a retirement village if: 1. the premises are residential premises 2. accommodation in the premises is intended to be for persons who are at least 55 years old, or who are a certain age that is more than 55 years 3. the premises include communal facilities for use by the residents of the premises 4. but the following are not retirement villages: a. premises used, or intended to be used, for the provision of residential care (within the meaning of the Aged Care Act 1997 ) by an approved provider (within the meaning of that Act); b. commercial residential premises. Retirement villages are not commercial residential premises for the purposes of the GST Act as they do not hold themselves out as accommodation for tourist guests or lodgers. Further, you are not using the premises for the provision of residential care within the meaning of the Aged Care Act 1997 . Therefore, your premises including the communal facilities will be considered to be a retirement village. | Detailed Reasoning - Residential premises: Section 40-65 of the GST Act provides that a sale of real property will be input taxed, to the extent that they are residential premises to be used predominantly for residential accommodation unless it is the sale of commercial residential premises; or new residential premises. Residential premises are defined in section 195-1 to mean 'land or a building that: A is occupied as a residence; or B is intended to be occupied, and is capable of being occupied, as a residence. The units you are constructing will meet the definition of residential premises. We consider that the word 'residence' in the above definition extends to: (a) that part of any common area and other appurtenances to the building, and (b) the land immediately contiguous to the building, and (c) that is predominantly necessary for the use and enjoyment of the building as a place of residence for individuals. By common areas, in relation to retirement villages, we mean paths, driveways, parks, gardens and communal recreational facilities, provided they are located within the curtilage of the complex. Therefore the common areas of your retirement village are included in the definition of residential premises to the extent they are part of the supply of the residences. Based on the information you supplied, supply of the units and the following facilities would be part of the supply of residential premises: · bbq entertainment and eating areas · any walking paths and landscaped gardens, including garden features and garden seating, and · the community centre Consequently, your supply of the units and any associated communal facilities will meet the definition of residential premises. Therefore, we need to consider whether they will be new residential premises when supplied - which are not input taxed under section 40-65 of the GST Act. | Detailed Reasoning - New residential premises: Section 40-75 of the GST Act provides that residential premises are new residential premises if they have not previously been sold as residential premises. However, the residential premises are not new residential premises if, for the period of at least 5 years since the premises first became residential premises; the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a). The premises you will construct will not be sold prior to your supply to entity B, nor will they be used to make input taxed supplies as per paragraph 40-35(1)(a). Therefore, your supply of the retirement village premises will be a supply of new residential premises which will be taxable where all the criteria of section 9-5 are satisfied. The MOU requires entity B to contribute an amount towards the development of the property. As this contribution has a nexus with the supply of the units, we consider that the contribution will be consideration for your supply of the new residential premises. | Detailed Reasoning - Conclusion: As your acquisitions have been made for a creditable purpose and you satisfy the other criteria for creditable acquisitions, you will be entitled to GST credits under section 11-20 of the GST Act for your creditable acquisitions associated with the construction of the retirement village.

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