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Edited version of your written advice

Authorisation Number: 1012714062087

Ruling

Subject: GST and acquisitions

Question

Are you entitled to input tax credits on the purchase of land, and the construction of a house on that land to use partly in your business?

Answer

Yes. To the extent that they are applied to making taxable or GST free supplies in the course of your enterprise, your acquisitions will be creditable acquisitions.

Relevant facts and circumstances

You are registered for GST. You currently provide supplies that are GST free in your enterprise.

You have engaged a builder to build a house on a block you acquired. The block of land is X square metres (sqm) and the house occupies some 6% of the land area. You are building a house on this block which is larger than the house you are currently operating from. You will use the house to live in and to operate your enterprise from. You advised that the larger size of the house will enable you to increase the number of services you provide. You plan to fence the whole block and use the whole backyard for the business.

The house is a 4 bedroom 2 bathroom home with a front lounge room a double garage with a rear home theatre and play area between bedroom 3 and the laundry.

Bedroom 1 is the master bedroom and will not be used for the business. The rest of the house will be used partly for your business and partly for your private usage. You have an area out the front where clients can park their cars and you will park your own vehicle their also. You plan to convert the garage for business use.

There will be modifications made to the house and surrounds to ensure it complies with industry requirements.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 11-5 and

A New Tax System (Goods and Services Tax) Act 1999 11-15.

Reasons for decision

You are entitled to GST credits for any creditable acquisition you make.

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

From the facts provided subsections 11-5(b), (c) and (d) of the GST Act are satisfied. Therefore, we must consider whether pursuant to subsection 11-5 (a) of the GST Act your acquisitions are acquired for a creditable purpose.

Section 11-15 of the GST Act states:

In your case, you have acquired the property partly for private purposes and partly to be used in carrying on your enterprise. Therefore your acquisitions will be creditable to the extent that you apply those acquisitions in carrying on your enterprise but not to the extent that you apply the acquisitions to private purposes.

Section 11-25 of the GST Act goes on to say that your entitlement to an ITC for creditable acquisitions 'is reduced if the acquisition is only partly creditable.

Subsection 11-30(1) of the GST Act states in this regard:

Goods and Services Tax Ruling GSTR 2006/4 (GSTR 2006/4) explains the Commissioner's view on the meaning of 'creditable purpose' and 'extent of creditable purpose' in Divisions 11, 15 and 129 of the GST Act.

Paragraphs 17 to 19 of GSTR 2006/4 provide a general explanation of how to apportion your credits.

Paragraphs 25 and 44 are reproduced below to assist you in working out a fair and reasonable method.

Full input tax credit x Extent of creditable purpose x Extent of consideration

Therefore, you may claim input tax credits in respect of your acquisitions to the extent that you intend to apply those acquisitions in making taxable or GST-free supplies in the course of your enterprise. If the actual use of the things acquired varies over time from your planned use, there will be a change in the extent of your creditable purpose and an adjustment may be required.


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