Private ruling: Goods and services tax (GST) and purchase of commercial property
Date of advice: 7 September 2017
Published: January 2018

Ruling: Q1: Are you entitled to an input tax credit on your purchase of the property? | A1: Yes.

Relevant facts and circumstances: You are registered for GST and have been registered for GST since (date) You purchased a property (the property) located in mainland Australia from Entity X (the vendor). Settlement date was on (date). The vendor was registered for GST during the entire period from the date of signing the sale contract and the date of settlement (inclusive). The property is a commercial building. You rent the property to Entity Y. Entity Y is owned by one of your partners. Entity Y operates a business from the premises. The rent is a substantial amount (inc GST). Your partners’ income tax returns included the net rent as joint rental income which exceeded the holding costs of the property. During the vendor’s period of ownership of the property, the vendor leased out the property to another entity other than Entity Y. There was no written agreement between you and the vendor that the sale of the property is a supply of a going concern. There was no agreement between you and the vendor that the margin scheme would be used to calculate GST on the sale of the property. You hold a valid tax invoice for the purchase.

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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 29-10 | A New Tax System (Goods and Services Tax) Act 1999 section 29-70

Reasons for decision: Summary: You are entitled to an input tax credit on your purchase of the property as: ● you purchased the property for a creditable purpose; and ● the sale of the property to you is a taxable supply; and ● you are registered for GST. | Detailed Reasoning - Detailed reasoning: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition where you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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. (*Denotes a term defined in the GST Act) Subsection 11-15(1) of the GST Act states: You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. Subsection 11-15(2) of the GST Act states: 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. You purchased the property in carrying on your leasing enterprise. Your acquisition did not relate to making supplies that would be input taxed and the acquisition was not of a private or domestic nature. Therefore, you acquired the property for a creditable purpose. Hence, you meet the requirement of paragraph 11-5(a) of the GST Act. | Detailed Reasoning - Acquisition of taxable supply: In accordance with paragraph 11-5(b) of the GST Act, one of the requirements for an acquisition to be creditable is that the purchaser received a taxable supply. A supplier makes a taxable supply if it meets the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: (a) you make the 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 the indirect tax zone; 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. The indirect tax zone includes mainland Australia amongst other things. The vendor in your case meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is: ● the vendor sold the property for consideration (the sale price) ● they vendor made the sale in the course or furtherance of their leasing enterprise ● the supply was connected with the indirect tax zone (as the property is located in the indirect tax zone), and ● the vendor was registered for GST for the transaction. There are no provisions of the GST Act under which the sale of the property was GST-free or input taxed. Therefore, as all of the requirements of section 11-5 of the GST Act are met, the sale of the property is a taxable supply. Hence, you meet the requirement of paragraph 11-5(b) of the GST Act. | Detailed Reasoning - Consideration: You provided consideration for the supply of the property. Hence, you meet the requirement of paragraph 11-5(c) of the GST Act. | Detailed Reasoning - GST registration: You were registered for GST when you purchased the property. Hence, you meet the requirement of paragraph 11-5(d) of the GST Act. | Detailed Reasoning - Conclusion: As you meet the requirements of section 11-5 of the GST Act, you are entitled to an input tax credit on your purchase of the property. In accordance with subsection 29-10(3) of the GST Act, a tax invoice must be held at the time of lodging a BAS in order to claim an input tax credit in that BAS. You can claim the input tax credit on your purchase of the property in a specified BAS. The correct input tax credit amount is (amount)