Private ruling: Supply of rights to purchase residential premises
Date of advice: 23 September 2021
Published: November 2021

Ruling: Q1: Whether the nomination fee paid to Entity A for exercising its right to nominate Entity B as the party entitled to exercise a call option to purchase residential premises is input taxed supply under subsection 9-30(2) of the A New System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: Whether Entity B is entitled to claim input tax credits for the nomination fees paid under section 11-20 of the GST Act? | A2: No.

Relevant facts and circumstances: Entity A and Entity B are related parties and jointly applied for a private ruling in relation to a call option on the purchase of residential premises. The residential premises are not new residential premises. Entity A is not registered for GST and was created to enter into a call option with the vendor of the residential premises. The call option deed provided that Entity A can nominate another party to exercise the call option to purchase the residential premises. Entity B is a property developer and is registered for GST. Entity A entered into a nomination deed with Entity B whereby it will nominate Entity B as the party entitled to exercise the call option to purchase residential premises. The consideration for the nomination is the nomination fee which includes the reimbursement of the option fees and any extension fees for the exercise of the call option.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s ection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-30 | A New Tax System (Goods and Services Tax) Act 1999 s ection 40-65 | A New Tax System (Goods and Services Tax) Act 1999 s ection 40-75

Reasons for decision: Summary: All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless specified otherwise. | Detailed Reasoning - Question 1: GST is payable on taxable supplies. Section 9-5 defines what are taxable supplies and one of the conditions specifically excludes a supply from being taxable to the extent it is GST-free or input taxed. Section 40-65 provides that the sales of residential premises is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, a sale is not input taxed to the extent that the residential premises is new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Section 40-75 provides that residential premises are not new residential premises if they have been previously been sold as residential premises. Subsection 9-30(2) provides a supply is input taxed if a) it is input taxed under Division 40 of the GST Act or under a provision of another Act; or b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a). Upon nominating Entity B as the entity that is entitled to exercise the call option under the nomination deed, Entity A essentially provides Entity B the right to purchase residential premises identified in the nomination deed. As the residential premises are not new residential premises, the sale would be input taxed under section 40-65. The provision of the right under the call option to purchase the residential premises would accordingly be input taxed under paragraph 9-30(2)(b) as the supply of rights to receive an input taxed supply. As the payment of the call option fee and any extension fees form part of the consideration for the nomination fee, they will be input taxed as well. | Detailed Reasoning - Question 2: Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisitions that it makes. Under section 11-5 of the GST Act, an entity makes a 'creditable acquisition' if: a) the entity acquires anything solely or partly for a *creditable purpose; and b) the supply of the thing to the entity is a *taxable supply; and c) the entity provides, or is liable to provide, *consideration for the supply; and d) the entity is *registered or *required to be registered for GST. * denotes a term defined in the Dictionary, starting at section 195-1. The nomination fees are consideration for the supply of the right under the call option. As the supply of the right to the call option is input taxed and is not taxable, Entity B is not entitled to claim input tax credits because the acquisition of the right does not satisfy tparagraph 11-5(b).