Private ruling: GST and entitlement to input tax credits
Published: December 2013

Ruling: Q1: Are you entitled to claim input tax credit's (ITC's) on the purchase of your property? | A1: No

Relevant facts and circumstances: You are registered for GST. You purchased an apartment (the property). The property is a fully furnished residential property consisting of bedrooms, kitchen, living/dining, laundry/bathroom. You are not living at the property. The property was purchased with a holiday letting contract in place and is being managed and rented by the on site managing agent. The Vendor is registered for GST. You have provided a copy of tax invoice issued by the Vendor. The tax invoice states: For the sale of the Property. Purchase Price $xx, 'purchase price includes GST of $xx'. You have provided a copy of the contract for sale which includes; special conditions and PAMD Form 20a. Contract for Sale provides: § the present use of the property as: residential/holiday letting, § purchase price: $xx (Unless otherwise specified in this contract, the purchase price includes any GST payable on the supply of the property to the Buyer). § Special conditions have been attached to the contract in relation to the managing agent, the condition state o The Parties agree that the purchase price includes GST. o The seller agrees to provide the Buyer with a Tax Invoice at Settlement. o The Buyer must prior to settlement, complete and execute a PAMDA Form 20a in the form attached to this Contract with any reasonable changed notified to the buyer. o The Buyer must hand the executed PAMDA Form 20a to the Seller at settlement. The Buyer authorises the Seller to: (a) … (b) Insert the details of the current Letting Agent in Part 2; or (c) Do anything else necessary to ensure that the Form 20a is binding on the Buyer once it has been executed by the Letting Agent named in the Form 20a. The Buyer- (a) confirms all acts done by the Seller under Special Conditions 4.2 and agrees that the Form 20a will be binding on the Buyer from settlement of this Contract; (b) Must honour all holiday bookings made for the Lot by the letting Agent prior to the Settlement Date. You have signed a PAMD Form 20a Appointment of agent - letting and property management (agency agreement). Schedule xx to the agency agreement provides a list of other fees and charges payable as part of the letting arrangement.

Relevant legislative provisions: 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 40-35 and | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: Under the GST law, an entity that is registered for GST may be entitled to claim GST credits (input tax credits) for certain things that it acquires for the purpose of carrying on its business. This is referred to as a creditable acquisition in the GST legislation. Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you make a creditable acquisition where: · you acquire anything 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 for GST. In this case, you have purchased a residential property. You have provided consideration for the purchase, and you are registered for GST. The Vendor is registered for GST and has treated the supply to you as a taxable supply. However, for there to be an entitlement to claim GST credits we still need to determine if your purchase of the property is solely or partly for a creditable purpose. Section 11-15 of the GST Act explains the meaning of 'creditable purpose', it provides that: · 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 supplies that would be input taxed; or · the acquisition is of a private or domestic nature. In regards to the first limb of sub-section 11-15 of the GST Act, you have advised that the property was purchased with a holiday letting contract in place. Under this contract you will be letting / leasing the property to third parties through an on site agent. It is therefore considered that you are carrying on an enterprise of leasing property, and the acquisition is in relation to that enterprise. However, under the second limb of section 11-15 we need to consider whether the purchase of the property relates to making supplies that would be input taxed. | Detailed Reasoning - Input taxed supplies: Subsection 40-35(1) of the GST Act provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises). 'Residential premises' is defined in section 195-1 of the GST Act as land or a building that: · is occupied as a residence or for residential accommodation, or · is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation). In this case the property is a residential apartment consisting of bedrooms, kitchen, bathroom and living area. The apartment is clearly residential premises. However we need to consider if the supply of the apartment has the character of commercial residential premises as this supply would be exclude it from the input taxed treatment provided by section 40-35 of the GST Act Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and Service Tax: commercial residential premises (GSTR 2012/6). The term 'commercial residential premises' is defined in section 195-1 of the GST Act and includes a hotel, motel, inn, hostel or boarding house, or anything similar. It is a common arrangement for strata titled premises to be let by onsite agents/managers who purchase the management rights from the developer and enter into individual agreements with room or unit owners who want to let their properties. An agency relationship exists for the supply of accommodation in premises where the rights conferred under these arrangements are not sufficient to enable the on-site agent to let the rooms as principal in its own right. Under these arrangements, the agent may supply the accommodation in the premises on the owner's behalf. Example 12 of GSTR 2012/6 - Individual holiday apartments, illustrates an example. Example 12 - individual holiday apartments 82. Gus owns an apartment in a block of strata titled holiday apartments. Gus's apartment is let out for short-term stays during the year through an on-site manager (who acts as Gus's agent ). The on-site manager, who acts as agent in respect to several apartments, provides keys to guests, and cleans the rooms between stays, refreshing items such as linen, towels and the tea and coffee making facilities. The body corporate maintains common areas but does not otherwise involve itself with occupants . 83. The premises are being operated so as to provide accommodation on a commercial basis to travellers (guests) who are temporarily away from their usual homes. The premises are managed by the on-site manager who also provides some services to guests. The manager does not supply the accommodation in their own right, but as agent for Gus . 84. While the accommodation provided through Gus's apartment does display some characteristics of commercial residential premises, the supply of the accommodation through the single apartment is not sufficiently similar to a hotel, motel, inn, hostel or boarding house to be characterised as accommodation provided in commercial residential premises. The fact that the manager acts as agent in respect to several apartments in the block and offers accommodation in that capacity to several parties at once is not sufficient to characterise the supply Gus makes to the guests through the manager as accommodation provided in commercial residential premises . 85. Gus's supply of his apartment by lease, hire or licence is an input taxed supply of residential premises to be used predominantly for residential accommodation under paragraph 40-35(1 )( a ). Based on the facts provided and terms of the PAMD Form 20a letting agreement, it is considered the example above is similar to your arrangement with the letting agent. That is the supply of your apartment by lease, hire or licence is an input taxed supply of residential premises to be used predominantly for residential accommodation under paragraph 40-35(1 )( a ). of the GST Act. As such, you are not entitled to input tax credits on the purchase of the property as it is not for a creditable purpose as per section 11-15 of the GST Act. In addition you will not be entitled to claim the ITC's on the agency services (commission) charged by the onsite manager as part of your agreement. These services also relate to you making input taxed supplies of residential premises. | Detailed Reasoning - Further information: The tax invoice supplied by the Vendor show's the GST component for the supply is less than 1/11 of the total consideration. This indicates that the Vendor may have sold the property utilising the margin scheme. Section 75-20 of the GST Act provides supplies under a margin scheme do not give rise to creditable acquisitions, despite section 11-5 of the GST Act. This means that an acquisition where the GST was calculated under the margin scheme is not considered a creditable acquisition, regardless of the input taxed treatment, and there in no entitled to claim input tax credits in relation to that purchase.