Private ruling: GST and entitlement to input tax credits
Published: May 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 are registered for goods and services tax (GST). · You are endorsed to access GST concessions. · One of your core objectives is the provision of low cost residential accommodation. · You have entered an agreement, whereby a developer will construct a residential complex. GST will be charged on these development costs. · The developer is not a related entity. · The property is designed for residential occupation. The intended use for the premises is describes in the Development Application as "Residential", and the land use as "Residential 1 or 2 bedrooms". · You have received a market valuation of the properties from Valuer A. · You have received a market valuation of the properties from Valuer B. · You have received a market valuation of the properties from Valuer C. · You advise you will charge less than 75% of the GST inclusive market value of the supply.

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 acquired 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 by your members. The intended use for the premises is describes in the Development Application as "Residential", and the land use as "Residential 1 or 2 bedrooms". 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 a supply 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 the Developer, under the contract, will be charging GST for their supply of the construction of the residential units therefore the supply of these goods and services will be taxable. (c) You have advised that under the terms of the contract between you and the Developer you are liable to provide, consideration for the goods and services; 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 the supply is GST-free. 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: 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 have advised that the supplier is not required to choose for any 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 the 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, the final provision 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 the residential development.