ATO Interpretative Decision

ATO ID 2002/296 (Withdrawn)

Goods and Services Tax

GST and input tax credits for construction of residential premises partly used for business purposes
FOI status: may be released

This ATO ID has been withdrawn as it does not accurately reflect the ATO view.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a sole trader, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions made in the course of constructing its residential premises where the premises will be used partly for its residential accommodation and partly for business purposes?

Decision

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act for acquisitions made in the course of constructing its residential premises where the premises will be used partly for its residential accommodation and partly for business purposes.

Facts

The entity is sole trader. The entity constructed residential premises. The supplies to the entity of goods and services for the construction of the residential premises were taxable supplies under section 9-5 of the GST Act. The entity will use the residential premises partly for its residential accommodation and partly for business purposes.

The part of the house that will be used for business purposes is not commercial premises and can still be used for residential purposes if the entity chooses.

The entity is registered for goods and services tax (GST) and provided consideration for the acquisitions.

Reasons for Decision

Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

•: it acquires anything solely or partly for a creditable purpose;
•: the supply of the thing to it is a taxable supply;
•: it provides, or is liable to provide, consideration for the supply; and
•: the entity is registered or required to be registered for GST.

Section 11-15 of the GST Act provides that an entity acquires something for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise. However, under paragraph 11-15(2)(b) of the GST Act an entity does not acquire something for a creditable purpose to the extent that it is of a private or domestic nature.

The entity is constructing residential premises that will be used partly for its residential accommodation and partly for business purposes. The part of the house that is used for the entity's residential accommodation is clearly of a private and domestic nature, and therefore, acquisitions made to construct this part of the house are not made for a creditable purpose.

However, it must be determined whether the acquisitions made to construct the part of the house that is for business purposes are also of a private and domestic nature.

A home, by its very character, is something that is of a private or domestic nature. The fact that part of the home is used for business purposes does not change the nature of the building. In this case, although the home includes rooms that will be used for business purposes, this does not give those parts of the building a character different from the rest of the house. It is still a home and private or domestic in nature.

When an entity constructs a building, each of the acquisitions made in the construction will take the character of the finished building. This will include the land on which the building is constructed. Therefore, the acquisitions made to construct the residential premises are of a private and domestic nature and are not for a creditable purpose within the meaning of section 11-15 of the GST Act. As such, the acquisitions are not creditable acquisitions under section 11-5 of the GST Act.

The entity is not entitled to input tax credits under section 11-20 of the GST Act when it constructs residential premises that will be used partly for its residential accommodation and partly for business purposes.

[Note 1: Although the entity is not entitled to input tax credits in relation to the acquisition of the land and the construction costs, the entity is entitled to input tax credits in relation to the acquisitions associated with maintaining a home office where the requirements of section 11-5 of the GST Act are met. This applies to furniture, electricity, insurance and costs associated with a home office (see Taxation Ruling TR 93/30 for guidance on when acquisitions to run and operate a home office are of a private and domestic nature or for business purposes).

Note 2: Where part of the building has a character that is different from that of a residence, that is, a part of the building has the character of a home and the other part has a commercial character, an entity is entitled to input tax credits for the construction of the commercial part, where the requirements in section 11-5 of the GST Act are met. The commercial part of the building will have features, fixtures or fittings that clearly distinguish it from the residential part. Examples of this are a residence with an attached shop front and a house that has been partly converted for use as a doctor's surgery (see paragraph 22 of Goods and Services Tax GSTR 2000/20).]

Date of decision: 4 December 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   section 11-15
   paragraph 11-15(2)(b)
   section 11-20

Related Public Rulings (including Determinations)
GSTR 2000/15
TR 93/30
GSTR 2000/20

Keywords
Goods & services tax
Supplies & acquisitions
Creditable acquisition
Creditable purpose

Business Line: GST

Date of publication: 28 March 2002

ISSN: 1445-2782

history

	Date:	Version:
	4 December 2001	Original statement
You are here	7 May 2010	Archived

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