Edited version of your written advice

Authorisation Number: 1013068094005

Date of advice: 1 September 2016

Ruling

Subject: GST and Creditable acquisitions

Question

Is the partnership (you) entitled to claim input tax credits, pursuant to section 11-20, on the cost of renovating the house located on the property the partners operate?

Answer

No

Relevant facts and circumstances

You are a GST registered partnership. You operate a primary production enterprise on a property located in Australia. A house (the House) is located on the property along with normal farming infrastructure and has X bedrooms, a bathroom, kitchen laundry, lounge, dining and family room plus a store room. Two partners in the partnership live in the House along with their children. You do not have a rental agreement with any of the occupants of the House and they occupy it as their principle place of residence.

You have decided to renovate the House and expect the renovations to cost some $XX.00. You will engage external contractors to undertake the project. In broad terms you plan to add a large bedroom with an ensuite, an additional lounge room and an additional room which you plan to use as an office to operate your business. You will also repair or replace other things such as the carpet, tiles, ceilings, plumbing and wiring.

You have no intentions of selling the property and the relevant individuals will continue to reside at the completed House.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35.

Reasons for decision

Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make.

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.

In your case you are registered for GST and you will provide some $XX.00 to contractors to renovate the property. Therefore where the supply of the construction services to you is a taxable supply and you acquire the renovation acquisitions for a creditable purpose you will be entitled to input tax credits.

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.

When the Partnership allows the individuals to live in the house which is a partnership asset, this is considered to be an informal lease or license arrangement.

Section 40-35 provides that a supply of premises by way of lease, hire or license is input taxed if the supply is of residential premises other than a supply of commercial residential premises. We do not consider your house meets the definition of commercial residential premises.

Section 195-1 defines residential premises 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 the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5), provides guidance on the meaning of the term residential premises.

Paragraph 9 of GSTR 2012/5 states:

The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

Further, paragraph 15 of GSTR 2012/5 provides that premises must provide shelter and basic living facilities.

We consider that the house in its entirety provides shelter and basic living facilities, displaying the physical characteristics of residential accommodation

You have advised that one room in the house has been set aside as an office for the partners to conduct the farming enterprise.

The office:

• is not separate to the house and forms an integral part of the house

• does not have an external entranceway and

• is situated off a passageway from the garage leading to the lounge room.

Although the use of this part of the house is different to the balance of the house the 'office' has no distinguishing features that would set it apart from the characterisation of residential premises.

Therefore, we consider that the premises from which the accommodation is supplied, satisfies the definition of residential premises under section 195-1 and the lease of the house will be an input taxed supply.

Therefore you have not acquired the renovation acquisitions for a creditable purpose and are not entitled to input tax credits on the renovation expenses.

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