Private ruling: Goods and services tax (GST) and residential premises
Published: October 2014

Ruling: Q1: Will your supplies of newly constructed residential units, by way of long-term lease from you to third party purchasers, be input taxed supplies? | A1: Yes | Q2: Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to refund the overpaid GST on supplies which were treated as taxable supplies? | A2: Yes | Q3: If the above supplies of residential apartments are input taxed, are the acquisitions relating to the development non-creditable acquisitions such that any input tax credits (ITC's) over-claimed will need to be amended to nil in the relevant business activity statements (BAS)? | A3: Yes | Q4: If the answer to question 3 is yes, can the BAS in which the ITCs were over-claimed be amended? | A4: Yes, the Commissioner confirms that the BAS in which the ITCs were over-claimed can be amended | Q5: Will the Commissioner remit any penalties and interest payable in respect of the tax shortfall arising from input tax credits being incorrectly claimed in relation to the development when you amend prior year BAS to reverse any over-claimed ITC's? | A5: This isn't a question we can rule on. If penalties are raised we suggest you request remission stating your grounds including those set out in your ruling application.

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. Entity A (You) is registered for GST. You purchased property (the Land) from another party. Located on the Land at the time of purchase was an existing free-standing residential dwelling and an operating business. Part of the land which contained the operating business was purchased as a GST-free going concern, while the land which contained the residential dwelling was acquired as an input-taxed supply. You lodged a development application (DA) with the appropriate Authority. The application was for the approval to construct multi-unit housing on the Land. The Authority approved the development with conditions. You incurred GST inclusive Costs of $xx in relation to the development. You paid a total of $xx to the Authority for various levies and fees. A condition of the DA was that the Crown Lease over the land be varied and a further $xx was paid for a 'Change of Use Charge'. You ceased operating the business and commenced the development of the land. As per the DA, surrendered the existing Crown leases in relation to the Land in exchange for a new single 50 year Crown Lease (hereafter referred to as the Development Lease) over the land.. The Development Lease gave effect to the Development Approval and included the following development conditions: • commencement and completion covenants, requiring you to commence an approved development within 6 month from the date of commencement of the lease and complete the development within 36 months; • a minimum cost covenant, requiring that the approved development cost not less than $xx; • covenants requiring you to provide and maintain (in accordance with the approved development plan); • water and sewerage lines etc. to the Land, • approved storage, car parking and illumination, • facilities to enable electrical and telephone cables and wires to be installed underground, • landscaping. • at clause xx to use the land for the following purposes: • the area of the land shown without hatching on the plan attached to this lease (lease plan) for a single dwelling; and • the remainder of the land, shown with hatching on the lease plan, for the purposes of a business and ancillary thereto a restaurant, convention facilities, retail shop and other services for travellers, guests and members of the public provided that the gross floor area of: ♥ the retail shop shall not exceed xx square metres of gross floor space; ♥ a minimum of xx square metres shall comprise a roofed swimming pool; ♥ the gross floor area of the ancillary uses including the retail shop shall not exceed thirty three per centum of the gross floor area of the buildings on the land; ♥ not more than xx units shall be constructed on the land including existing units; OR • multi-unit housing for not less than xx and not more than xx dwellings subject to compliance with the requirements of the lease. You commenced selling units off the plan in yyyy. Marketing and sales continued through yyyy and yyyy using the Standard Contract for the Sale of Land and included the following GST clauses: • the price is stated to be GST inclusive unless otherwise specified; • the taxable supply box is ticked indicating the Buyer and Seller have agreed to apply the margin scheme; • subclause xx states GST is not to be added to the price or amount unless the contract provides otherwise; • subclause xx provides that if the contract states the Buyer and Seller agree the margin scheme applies, the seller warrants that it can use the margin scheme and promises that it will; • subclause xx provides that if the contract states the sale is a taxable supply, does not say the margin scheme applies and the sale is not a taxable supply, then the Seller must pay the Buyer on completion an amount of one-eleventh of the price • special condition xx confirms the price payable is GST inclusive and the Buyer agrees with the Seller that the GST is calculated using the margin scheme. In yyyy a surveyor prepared a schedule of unit entitlements for the development and you lodged a units plan for registration of the subdivision. The units plan was approved. Following issue of the strata titles, completion of the apartment sales occurred with the majority of the sales settling during yyyy. You treated the supply of the developed units as 'new residential premises' for GST purposes. At the time of your ruling application, you advised that GST was remitted to the ATO for the relevant periods using the margin scheme to calculate the GST Payable of approximately $xx million. You further advised you had claimed input tax credits totalling approximately xx million in relation to the development costs in the annual BAS.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 Section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(2B) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(2C) | A New Tax System (Goods and Services Tax) Act 1999 Division 135 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 and Tax Laws Amendment (2011 Measures No.9) Bill 2012, Item 12 and 13 of Schedule 4

Reasons for decision: Detailed Reasoning - Will your supplies of newly constructed residential units, by way of long-term lease from you to third party purchasers, be input taxed supplies?: Goods and Services Tax (GST) is payable on taxable supplies. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make a 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. In your case, the individual units will be sold for consideration, the supplies will be made in the course of your enterprise, the supplies are connected with Australia and you are registered for GST. Consequently, the supplies will be taxable unless the supplies are GST-free or input taxed. In your circumstances, there is no provision in the GST Act whereby your supplies will be GST-free. Therefore, the only remaining issue to be determined is whether your supplies are input taxed. Under subsection 40-65(1), a sale of real property to be used predominately for residential accommodation (residential premises) is input taxed. However, subsection 40-65(2) states that the sale is not input taxed to the extent that the residential premises are: (a) *commercial residential premises, or (b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998 Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply. The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation, or is intended to be, and is capable of being, occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation). Subdivision 40-C provides that a supply of residential premises will be input taxed to the extent that they are not commercial residential premises or new residential premises. Based on the information submitted, the premises to be developed on the land, are residential premises, are not commercial residential premises, and were not used for residential accommodation before 2 December 1998. | Detailed Reasoning - The meaning of new residential premises under section 40-75: The term 'new residential premises' has the meaning given by section 40-75, which in part states: | Detailed Reasoning - 40-75 Meaning of new residential premises: When premises are new residential premises (1) *Residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease; (b) …; or (c) …. Paragraphs (b) and (c) have effect subject to paragraph (a). Paragraph 40-75(1)(a) of the GST Act is applicable to your circumstances. | Detailed Reasoning - The Full Federal Court's decision in Gloxinia: Consistent with the Full Federal Court's reasoning in Commissioner of Taxation v Gloxinia Investments Ltd [2010] FCAFC 46 ( Gloxinia ), the grant of each of the individual unit title leases (for a term in excess of 50 years) upon approval and registration of a units plan will constitute a supply of residential premises by way of long term lease. Therefore, having regard to the terms of paragraph 40-75(1)(a) in isolation, any subsequent supply of the individual residential units, by way of assignment of the unit title leases, would be an input taxed supply of residential premises. That is, the individual residential unit would have previously been the subject of a long term lease (by virtue of the grant of the unit title leases) and would no longer be new residential premises. However, following Gloxinia, section 40-75 was amended by Tax Laws Amendment (2011 Measures No. 9) Act 2012 ('the Amending Act') to include subsections 40-75(2B) and 40-75(2C). | Detailed Reasoning - New subsection 40-75(2B) and subsection 40-75(2C): The effect of subsections 40-75(2B) and 40-75(2C) is to disregard certain sales and supplies of residential premises when determining if the premises have been sold or have been subject to a long term lease for the purposes of paragraph 40-75(1)(a). In regards to the sales of strata titled residential apartments constructed by you on the land, you made an application to the Authority to register a unit's title plan which was approved in yyyy. You have advised that the unit title leases that have been granted to you in respect of the registered units plan have a term of 99 years. Consistent with the Full Federal Court's decision in Gloxinia, when you sell the residential apartments by way of assignment of the individual unit title leases to home buyers and investors, those residential apartments are considered to have previously been the subject of a long term lease. However, in determining whether or not your sales of the residential apartments will be taxable supplies of new residential premises or input taxed supplies of residential premises, it is necessary to consider whether or not subsection 40-75(2B) or subsection 40-75(2C) apply. | Detailed Reasoning - Application of Subsection 40-75(2B): Subsection 40-75(2B) states: (2B) A supply (the wholesale supply ) of the *residential premises is disregarded as a sale or supply for the purposes of applying paragraph (1)(a) if: (a) the premises from which the residential premises were created had earlier been supplied to the *recipient of the wholesale supply or one or more of its *associates; and (b) an arrangement (including an agreement) was made by: (i) the supplier of the earlier supply, or one or more associates of the supplier; and (ii) the recipient of the earlier supply, or one or more associates of the recipient; and (c) under the arrangement, the wholesale supply was conditional on: (i) specified building or renovation work being undertaken by the recipient of the earlier supply, or by one or more associates of the recipient; or (ii) circumstances existing as specified in regulations made for the purposes of this subparagraph. In summary, for the purposes of determining whether residential premises are new residential premises under paragraph 40-75(1)(a), subsection 40-75(2B) specifies that particular supplies ('wholesale supplies') of newly constructed residential premises are disregarded. That is, subsection 40-75(2B) is premised upon there being a sale or supply by way of long term lease that would otherwise disqualify the residential premises from being new residential premises under paragraph 40-75(1)(a) of the GST Act. For the purposes of subsection 40-75(2B) (if this subsection were to apply), the relevant 'wholesale supply' with respect to your residential development would be the grant of the individual unit title leases to you by the planning and Land Authority. However, for subsection 40-75(2B) to apply to disregard the supply of the residential premises that will be made by way of long term lease of the individual unit title leases, the requirements of paragraphs 40-75(2B)(a), (b) and (c) must be satisfied. ATO Interpretative Decision (ATO ID) 2014/19 provides the ATO view in respect of 'GST and the supply of newly constructed residential premises under an arrangement entered into prior to 27 January 2011'. In particular the ATO ID considers the application of paragraphs 40-75(2B) (a), (b) and (c). Firstly, paragraph 40-75(2B)(a) requires the premises from which the residential premises were created to have earlier been supplied to the recipient of the wholesale supply, or their associates. In your case paragraph 40-75(2B)(a) is satisfied because there will have been an earlier supply of the premises upon which the development is being undertaken, by virtue of the grant of the original 99 year Crown Lease to you for the land, and the subsequent surrender and re-granting of a single Crown Lease over the land. Secondly paragraph 40-75(2B)(b) requires that an arrangement (including an agreement) be made between the supplier of the earlier supply, or their associate and the recipient of that earlier supply, or their associate. Here it is considered that the Crown Lease, together with the Development Approval form part of an arrangement between you and the Authority. Therefore, paragraph 40-75(b) is satisfied. Lastly, paragraph 40-75(2B)(c) requires that under the arrangement between you and the Authority, the wholesale supply of the residential premises being the granting of the individual unit title leases over the residential apartments by the Government Body to you is conditional on you undertaking specified building or renovation work. ATO ID 2014/19 states: 'The arrangement between the entity and the government body includes the development approval and the Crown Lease, which set out the requirements for the type of development including the specified building works. The specified building works are also governed by the statutory requirements covering the construction of residential premises under which the development approval has been given and the Crown lease granted by the government body.' ATOID 2014/19 also recognises the intent of parties in entering into their development is for the construction and sale of individual residential premises and acknowledges the sale of the individual residential units can only occur following the lodgement of a strata leasehold plan and the subsequent grant of the individual strata lot leases. As such, the arrangement entered into between Developers and Government Bodies also includes the lodging of the strata leasehold plan and granting of the individual strata lot leases. Under the arrangement between you and the Authority, it is considered the granting of the individual unit title leases over the residential apartments to you (the wholesale supply) is conditional on you undertaking specified building or renovation work. Therefore, paragraph 40-75(c) is considered satisfied and subsection 40-75(2B) would apply to disregard the supply of the residential premises that occurs upon grant of the individual strata lot leases, except for the operation of the transitional provision item 12 of Schedule 4 to the Amending Act (item 12). Subject to certain conditions being met, item 12 provides that subsection 40-75(2B) does not apply to supplies of residential premises made on or after 27 January 2011 if, prior to 27 January 2011, the recipient of the supply was 'commercially committed' to an arrangement. | Detailed Reasoning - The item 12 exception to section 40-75(2B): Whilst the new section 40-75(2B) applies in relation to supplies of residential premises occurring on or after 27 January 2011, there is an exception whereby certain arrangements which were entered into before 27 January 2011 will not be subject to section 40-75(2B). The exception is contained at item 12 of Schedule 4 to the Amending Act. Where the wholesale supply of consequent leases occurs after 27 January 2011, in order to qualify for the exception, the following conditions must be satisfied: a) The premises from which the residential premises were created had earlier been supplied to the recipient of the wholesale supply or one or more of its associates; and b) Immediately before 27 January 2011, the recipient of the wholesale supply or one of more of its associates were commercially committed to an arrangement; and c) Under the arrangement, the wholesale supply was conditional on specified building or renovation work being undertaken by the recipient of the wholesale supply or by one or more of its associates; and d) No GST return (as amended) given to the Commissioner reports a net amount for a tax period that includes amounts equivalent to the input tax credits that the recipient of the wholesale supply would have been entitled to if its acquisitions relating to the next sale or long term lease of the residential premises were creditable acquisitions. Commercially committed is a defined term. To be commercially committed, in relation to an arrangement, means: (a) to be a party to the arrangement, where the arrangement is legally binding; or (b) to be the preferred tenderer (however described) in the final step in a bidding or tendering process relating to the arrangement; or (c) to have directly made (with associates) acquisitions, having a total GST exclusive value of at least $200,000, in relation to the arrangement; or (d) to have directly incurred (with associates) internal direct costs, of at least $200,000, in relation to the arrangement. | Detailed Reasoning - Application of the Item 12 exception: The wholesale supply of the unit title leases by the Authority to you occurred after 27 January 2011, when you lodged your strata plan (property subdivision plan). | Detailed Reasoning - Application of the 12 exception to section 40-75(2B): The wholesale supply of the unit title leases by the Authority to you occurred after 27 January 2011, when you lodged your strata plan (property subdivision plan) on dd/mm/yyyy. The item 12 exception to the Amending Act is satisfied in relation to the wholesale supply as: (a) The premises from which the residential premises were created were previously supplied to you by way of your acquisition of the land when you took over the original 99 year Crown Lease from the vendor. (b) You were commercially committed to the arrangement prior to 27 January 2011 as you had incurred direct costs in relation to acquisition of the Crown Lease of $xx, being consideration for the acquisition of the land, residential dwelling and business. You had also incurred GST inclusive costs of $xx in relation to the development with further levies and fees paid to the Authority of $xx. (c) The arrangement is considered to include the Development Approval setting out the specified works and the new Crown Lease. The registration of the units plan is the wholesale supply and that was conditional on the terms of the development approval and new Crown Lease being satisfied. (d) You advised that in the event that the supplies are correctly classified as input taxed supplies, you will review and amend any prior GST returns that have been lodged in relation to the development of the Land to ensure that all acquisitions are treated as not being creditable acquisitions. Subject to you amending the GST returns, you have satisfied all the preceding conditions to the exception to section 40-75(2B) of the GST Act. Accordingly, the premises are not new residential premises. Any supplies of the residential premises by you will be input taxed supplies. | Detailed Reasoning - Subsection 40-75(2C): Under subsection 40-75(2C), a supply of the newly constructed residential premises is disregarded as a sale or supply for the purposes of applying paragraph 40-75(1)(a) if it is made because a property sub-division plan relating to the premises was lodged for registration (however described) by the recipient of the supply or their associate. In this case, the strata leasehold plan is a property sub-division plan as defined in section 195-1 and the granting of the individual strata lot leases would therefore be captured by subsection 40-75(2C). The transitional provision exception to subsection 40-75(2C) provided by item 13 of Schedule 4 to the Amending Act is not satisfied, but regard must be had to the overall intent and operation of all the transitional provisions relating to these legislative amendments. Accordingly, although both subsections 40-75(2B) and 40-75(2C) apply to this supply, in accordance with ATO ID 2014/19, subsection 40-75(2C) does not prevail to prevent the exception provided by the transitional provision of item 12 from applying. Therefore, the subsequent supply by the entity of the residential units to home owners and investors will be input taxed supplies. In conclusion, your supplies of residential premises by way of assignment of a long term lease from you to third party purchasers will be input taxed supplies of residential premises. | Detailed Reasoning - Question 2: Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to refund the overpaid GST on supplies which were treated as taxable supplies? Sales of the units commenced off the plan in yyyy at a time when the decision in Gloxinia had been handed down but the Commissioner had applied for special leave to the High Court to appeal the Gloxinia decision and had not withdrawn GSTR 2008/2. The Government had made no announcements regarding changes to the law at this time. Following issue of the strata titles, completion of the apartment sales occurred with the majority of the sales settling during yyyy. You treated the supply of the developed units as 'new residential premises' for GST purposes. At the time of your ruling application, you advised that GST was remitted to the ATO for the relevant periods, using the margin scheme to calculate the GST Payable of approximately $xx million. You believe that the way the GST law was applied to the supplies of the apartments was incorrect and that the sales should have been treated as input-taxed supplies, not taxable supplies. Under the general rules, the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953 (TAA). However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied. Subsection 105-65(1) of Schedule 1 to the TAA states: 1. The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if: (a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply to any extent; and (b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST free); and (c) one of the following applies: (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient; (ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered. You have stated that because of your incorrect application of the GST law you have overpaid GST since yyyy by a net amount of $xx calculated using the margin scheme on sales of $xx less ITCs. If you satisfy the conditions in Item 12 of Schedule 4 to the Amending Act, your supplies of those apartments would not be taxable supplies but would be input taxed supplies of residential premises and the amount of GST you remitted would be more than was legally payable and therefore there would be an overpayment of GST. Per paragraph 6.17 of the Explanatory Memorandum to the Amending Act, the purpose of the transitional provision item 12 is to prevent a property developer from being disadvantaged where they have entered into specified arrangements on the basis of the Gloxinia decision. That is, if the developer had progressed the development on the basis that the end supply of the individual residential units were to be input taxed, due to the previous 'wholesale supply' between the developer and government agency being the supply of new residential premises, then the transitional provision item 12 would apply to prevent the end supply being a taxable supply. The words 'need not' contained in section 105-65 indicate the Commissioner may choose to pay a refund in appropriate circumstances even though the conditions in paragraphs 105-65(1)(a), (b) and (c) are satisfied. To this limited extent the Commissioner has a discretion. Further, paragraphs 116 and 117 of MT 2010/1 state: 116.The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary.…The words of the provision say that where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions…. 117. The commissioner considers that the words 'need not', in the context of section 105-65, do not prohibit the giving of a refund and accordingly the Commissioner has a discretion to pay a refund in appropriate circumstances…. This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of T 2010 ATC 10-119 at 57 when the AAT referred to "residual discretion". The question then becomes whether, in these circumstances, the discretion to pay the refund to the applicant should be exercised. | Detailed Reasoning - When the Commissioner's Discretion can be exercised: Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states: 128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles:48 (a) The Commissioner must consider each case based on all the relevant facts and circumstances. (b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations. (c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling, it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non-registered end consumer. (d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily. The circumstances in which the Commissioner considers it may be fair and reasonable to exercise the discretion include, but are not limited to, the following: (i) The overpayment of GST arises as a direct result of the actions of the Commissioner and the taxpayer has not had the opportunity to factor in the cost of the GST or otherwise pass on the GST, for instance through a gross up clause. For instance, an entity had treated its supply as GST-free, the Commissioner subsequently treats the supply as taxable, the entity pays an amount for GST on the supply, but the Commissioner later reverses that decision. In such circumstances it would not be necessary for the supplier to refund the recipient of the supply whether the recipient is registered or unregistered. (ii) The taxpayer can demonstrate that, for other reasons, they did not otherwise pass on the GST. As mentioned in Avon , 'it is for the taxpayer to establish a circumstance out of the ordinary, namely that the amount of the overpayment ... has not been passed on'. (iii) The supplier is able to satisfy the Commissioner that an amount corresponding to the refund will be, or has been, passed on to the party that ultimately bore the cost of the overpaid GST… (e) The discretion would generally not be exercised where it produces an unreasonable result, for example an asymmetrical revenue outcome. This could occur where, for example, a supplier reimburses a registered recipient for the overpaid GST but the Commissioner is unable to reclaim the over claimed input tax credit from the recipient. 49 You contend that sales of the apartments, which commenced off the plan in yyyy, were made at a time when you believe the law was uncertain; the decision in Gloxinia had been handed down; the Commissioner had applied for special leave to the High Court to appeal the Gloxinia decision and had not withdrawn GSTR 2008/2. The Commissioner's view under GSTR 2008/2 made it clear that the end supplies of the individual units would be taxable. After the Gloxinia case, the Commissioner sought an application for special leave to appeal and then on being denied, the proposed amendments were announced on 27 January 2011. GSTR 2008/2 was not withdrawn until 11 May 2011, which was only shortly after the Decision Impact Statement for Gloxinia issued on 20 April 2011. Taking into account all the facts and circumstances of this particular case, as required by MT 2010/1, the Commissioner is satisfied that, subject to you falling within the transition provision in item 12 of Schedule 4 to the Amending Act, you have overpaid an amount because you treated a supply as a taxable supply when the supply was not a taxable supply. Consequently, it is reasonable for the Commissioner to exercise his discretion to allow a refund of the overpaid GST amount. | Detailed Reasoning - Question 3: If the above supplies of residential apartments are input taxed, are the acquisitions relating to the development non-creditable acquisitions such that any ITC's over-claimed will need to be amended to nil in the relevant BAS? You advised that in the event that the supplies of the residential apartments are input taxed supplies, you will review and amend any prior GST returns that have been lodged in relation to the development of the Land to ensure that all acquisitions are treated as not being creditable acquisitions. Your supplies of the residential apartments will not be taxable supplies but will be input taxed supplies where you satisfy the conditions in the item 12 exception to section 40-75(2B). In this case, the acquisitions relating to the development will not be creditable acquisitions and any input tax credits (ITC's) over-claimed will need to be amended to nil in the relevant business activity statements (BAS). You have advised that you have claimed GST input tax credits in relation to the development. In order that you may treat the sales of your apartments as input taxed supplies, the relevant GST returns relating to the development and preliminary costs will need to be amended to ensure paragraph (d) of sub-item 12(2) of Schedule 4 is satisfied. | Detailed Reasoning - Time limit on recovery by the Commissioner: You advised that you have claimed input tax credits totalling approximately $xx million in relation to the development costs. A question arises as to whether section 105-50 of Schedule 1 to the TAA applies to your repayment of those input tax credits. Under subsection 105-50(1) of Schedule 1 to the TAA, any unpaid net amount or overpaid refund amount ceases to be payable 4 years after it became payable by you. Having regard to the specific circumstance of your case, the Commissioner considers that the time limit in section 105-50 of Schedule 1 to the TAA does not apply to your repayment of the input tax credits totaling $xx million. | Detailed Reasoning - Question 5: If you choose to amend your BAS to treat sales as input taxed where previously you treated them as taxable supplies and you repay ITCs claimed and any penalties are raised, we suggest you request remission stating your grounds including those set out your ruling application. | Detailed Reasoning - Increasing adjustment: Division 135 provides that the recipient of a supply of a going concern has an increasing adjustment to take into account the proportion (if any) of supplies that will be made in running the concern and that will not be taxable supplies or GST-free supplies. Later adjustments are needed if this proportion changes over time. As you initially intended to make taxable supplies of new residential premises and accordingly reported the GST on these taxable supplies under the margin scheme, subsection 135-5(1) does not apply. As outlined in this private ruling, subject to you falling within the transition provision in item 12 of Schedule 4 to the Amending Act, the supplies of the newly constructed residential premises to third party purchasers will be input taxed. Although you have not asked the Commissioner to rule on the Division 135 issue, you have argued that as the development is a different enterprise from that carried on when the property was acquired as a going concern, Division 135 does not apply. In your case, as your residential development would have changed from the initial intent of making taxable supplies to making input taxed supplies you will need to consider whether section 135-10 would apply. Item 6.2.14 of the Primary Production Industry Partnership deals with the issue of a recipient of a GST-free supply as a going concern and whether the change from a farming enterprise to another enterprise requires the making of a Division 135 increasing adjustment. This issue has been labelled as a public ruling. The explanation provides that the words 'the enterprise' in Division 135 should be read as the enterprises. The focus of this issues register item is on an initial GST-free supply under section 38-480, but this is not considered to distinguish it from a GST-free supply of a going concern under section 38-325. The effect of this is there would be no Division 135 adjustment required provided the subsequent supplies are taxable or GST-free. In your case, the portion of the land that the business was located on was purchased as a GST-free going concern in 200X. If the initial intent was to develop the property, then this would be outside the X years for a section 135-5 adjustment. However, as the land was purchased for $xx, if the change is a later change that section 135-10 applies to, then an adjustment may be required under paragraph 129-20(3)(c). | Detailed Reasoning - Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, A New Tax System (Goods and Services Tax) Act 1999 Section 40-35 A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(2B) A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(2C) A New Tax System (Goods and Services Tax) Act 1999 Division 135 A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 and Tax Laws Amendment (2011 Measures No.9) Bill 2012, Item 12 and 13 of Schedule 4

Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | • all terms marked by an *asterisk are defined terms in the GST Act, and | • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au