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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012375383363

Ruling

Subject: GST and entitlement to input tax credits

Issue

Whether you are entitled to input tax credits in relation to the expenditure incurred with your program of works. (Works)

Question

Do you make a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the Works?

Answer

Yes

Relevant facts and circumstances

You are a company registered for GST from 1 July 2000.

You own land (Land) which you intend to develop.

A portion of the Land (Developer's Land) is to be sold to the Developer to allow the Developer to construct a number of new residential dwellings which will then be sold by the Developer to the public for a commercial gain. This activity will involve you making taxable supplies.

Only a portion of the titles of the Developer's Land (footpaths, nature strips etc) would be vested back to you in accordance with the requirements of the relevant Act and the remaining areas containing the residential premises would be 'owned' by the Developer.

As part of the development project (Project) you are developing land in partnership with a Developer to provide affordable sale and rental housing. You will also be conducting other works (Works) within the Project area.

You will engage the Developer to design and construct:

The Works are to be completed on the land vested to you from the Developer's Land.

You are paying a commercial fee to the Developer for the Developer to design and construct the Works.

As part of your enterprise you are required to, amongst other things; provide services that benefit your area, and visitors to the area. You must provide infrastructure for your community and for development within your area and must manage and, if appropriate, develop public areas vested in, or occupied by you.

As a result of the above obligations, you would be conducting the Works event if the Project was not proceeding.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-10

Section 9-15

Section 11-5

Section 11-20

Reasons for decision

Question 1

Summary

You will make a creditable acquisition under section 11-5 of the GST Act in relation to the Works. Accordingly you are entitled to input tax credits.

Detailed reasoning

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to an input tax credit for any creditable acquisition you make.

In your case, you acquired the services of the Developer to design and construct the Works, including road works, paving of some trees, nature strips; and the development of some parks within the Project area.

Under section 11-5 of the GST Act you make a creditable acquisition if:

In your case, the supply of the Developer's services to you is a taxable supply, you provide consideration and you are registered for GST. However, we must determine if you acquire the services for a creditable purpose.

You are acquiring the services of the Developer to design and construct the Works. The relevant Act requires you to provide services that benefit your area and visitors to the area. You must provide infrastructure for your community and for development within your area and must manage and, if appropriate, develop public areas vested in, or occupied by you. In this regard you are acquiring the services of the Developer to design and construct the Works as part of your enterprise.

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

Relevant to this matter is the meaning of creditable purpose. What is a creditable purpose is provided for in section 11-15 of the GST Act. Relevantly, that section states:

It must now be determined if your acquisition of the Developer's services satisfies subsection

11-15(1) of the GST Act or whether subsection 11-15(2) of the GST Act applies.

Goods and Services Tax Ruling 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? (GSTR 2008/1) offers guidance to determine this issue. In particular paragraph 55 of GSTR 2008/1 states:

The meaning of the term 'carrying on an enterprise' is defined by reference to section 195-1 of the GST Act to include "...doing anything in the course of the commencement or termination of the enterprise".

The word 'enterprise' is given its meaning by section 9-20 and includes "...an activity or series of activities, done in the form of a business".

The issue of whether or not you are carrying on an enterprise is not in contention. We are satisfied that you are carrying on an enterprise and therefore, satisfy the tests set out in section 9-20 of the GST Act. As such, the next issue that has to be considered is whether there is a connection between the acquisition made from the Developer and your enterprise.

Paragraphs 69 and 70 of GSTR 2008/1 state:

Based on the above we are satisfied that the services to be acquired from the Developer are made by you to enable you to satisfy your statutory obligations under the relevant Act. Therefore, it is our view that there is a relevant connection between the acquisition of those services and the enterprise which you carry on.

It must now be determined if the acquisition from the Developer relates to making an input taxed supply as required by paragraph 11-15(2)(a) of the GST Act.

As a general rule, to the extent that you make input taxed supplies, due to the operation of paragraph 11-15(2)(a) of the GST Act, any services acquired by you in relation to making such supplies, would not be for a creditable purpose. Accordingly, no input tax credit would arise under section 11-20 of the GST Act.

You have advised that a portion of the Land is to be sold to the Developer to allow the Developer to construct a number of new residential dwellings which will then be sold by the Developer to the public for a commercial gain. This activity will involve you making taxable supplies of the Land.

You further advise that the specific parts of the property on which the Works are to be undertaken concern those areas to be sold to the Developer.

Only a portion of the titles of the Developer's Land (footpaths, nature strips etc) would be vested back to you and the remaining portions of the titles containing the residential premises would be 'owned' by the Developer as required under a particular Act.

As the 2 separate parts of the land will be held by different entities we consider that there is insufficient nexus between the residential portion of the land owned by the Developer and the land required for the Works.

The provision of the Works, including road works, paving and planting of some trees; nature strips; and the development of some parks is an integral part of your business and the arrangement that you have with the Developer is a normal commercial arrangement to facilitate your requirements under the relevant Act.

The supply of the Developer's services would therefore be a taxable supply and you will be making a creditable acquisition and would be entitled to an input tax credit for the GST imposed on those costs.

What is your ITC entitlement?

The amount of GST payable on the taxable supply to you is calculated by reference to sections 9-70 and 9-75 of the GST Act. The amount of your input tax credit entitlement is equal to the amount of GST payable by you on your taxable supply (see section 11-25 of the GST Act).


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