| Disclaimer This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012558436089
Ruling
Subject: GST and input tax credits
Question
Are you entitled to claim input tax credits for the acquisitions that you make in relation to the renovation of your property?
Answer
Yes, you are entitled to claim input tax credits for the acquisitions that you make in relation to the renovation of the property.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You own a property located in Australia (the property).
The property is a colonial style house but was zoned as a commercial character building.
You leased the property as residential premises.
You are now renovating the whole property so it can be used as a business. Some walls are removed and plumbing and electrical are altered to allow a commercial operation. The business will be run by another entity which has made a commitment to lease the property.
The acquisitions that you made in renovating the property were taxable supplies to you.
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
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Reasons for decision
Creditable acquisitions give rise to entitlement to input tax credits.
Section 11-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) 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 under section 195-1 of the GST Act)
You advised that the acquisitions that you made in relation to the renovation of the property were taxable supplies to you. You provided, or are liable to provide consideration for your acquisitions; and you are registered for GST. The requirements in paragraphs 11-5(b), 11-5(c) and 11-5(d) of the GST Act are satisfied. What remains to be determined is whether your acquisitions were for a creditable purpose.
For the purpose of paragraph 11-5(a) of the GST Act, section 11-15 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:
(a) the acquisition relates to making supplies that would be input taxed; or
(b) the acquisition is of a private or domestic nature.
Input taxed supply
Under paragraph 40-35(1)(a) of the GST Act, the supply of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises) by way of lease, hire or licence is input taxed.
The term 'residential premises' is defined in section 195-1 of the GST Act to mean 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 occupation or intended occupation) and includes a floating home.
In this case, your property is a colonial house that has a commercial character. You leased the property for residential accommodation; as such, your supply of the property was an input taxed supply.
However, you renovated the whole property in such a way that it can be used as a business. Alterations were made to the property to allow a commercial operation; thus, losing the physical characteristics of residential premises that is suitable for, and capable of, being occupied as a residence or for residential accommodation. Therefore, your lease of the property will not be a supply of residential premises and will not be input taxed.
The acquisitions that you made in renovating the property do not relate to making supplies that would be input taxed.
Private or domestic in nature
The acquisitions that relate to the renovation of the property were made in carrying on your leasing enterprise. Thus, the acquisitions are not of a private or domestic nature.
Conclusion
As the acquisitions that you made in renovating the property do not relate to making input taxed supplies and are not private or domestic in nature, the acquisitions are for a creditable purpose. The requirement in paragraph 11-5(a) of the GST Act is satisfied.
All the requirements of section 11-5 of the GST Act are satisfied; thus, your acquisitions in renovating the property are creditable acquisitions. Accordingly, you are entitled to claim input tax credits for those acquisitions.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
