Edited version of your written advice

Authorisation Number: 1013123877728

Date of advice: 2 December 2016

Ruling

Question

Is the proposed revised apportionment methodology set out below considered to be fair and reasonable for calculating the amount of input tax credits that you can claim on your acquisition of the Property?

Answer

Yes.

Relevant facts and circumstances

You entered into an agreement to acquire the Property from the Vendor.

The Property is currently split into four separate parts as follows:

● 2 downstairs premises which are commercial in nature and

● 2 upstairs premises that are residential premises.

One of the ground commercial premises is currently under tenancy and is leased under an oral agreement on a month to month basis. The tenant currently pays rent.

The other commercial premises are currently vacant and are not advertised for lease.

The two upstairs premises are residential. They are equipped with bathrooms, kitchens and bedrooms. They are not currently subject to any tenancy. It is your understanding that the Vendor has not considered advertising these premises for lease on the basis that a sale of the premises is imminent and it was considered that a residential tenancy may have been an impediment to any proposed sale.

You provided a copy of the Contract for the sale of land (Contract)

You provided a copy of a letter stating that the parties have agreed to variations to the Contract:

● the supply of the property is partly a GST-free supply of a going concern, partly a taxable supply and partly an input taxed supply of residential premises.

● the supply of that part of the property that is subject to the Lease, is a GST-free supply of a going concern for GST purposes;

● the supply of that part of the property that is untenanted and commercial in nature is a taxable supply;

● the supply of that part of the property that are residential premises is an input taxed supply of residential premises;

● the equal apportionment of the GST-exclusive price between the GST-free supply of a going concern, the taxable supply and the input taxed supply:

● each party warrants that is registered or required to be registered under the GST Act.

In a subsequent email, you provide the following information:

● The 4 different premises are of different sizes

● The Contract provided for an equal split of the price for each part of the site on the basis that the Property was purchased as one site for development purposes.

● You proposed a revised apportionment method based on the size of the premises.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-80.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65.

Reasons for decision

Section 11-20 of the New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired.

In this case, the Property comprises two commercial premises and two residential premises. Each of these areas is a separately identifiable part.

Based on the information you provided, the effect the GST Act has on the supply of each part is as follows:

● To the extent that the sale of the Property relates to the commercial premises that are tenanted, the sale to you is a GST-free supply of a going concern under section 38-325 of the GST Act.

● To the extent that the sale relates to the residential premises, the supply to you is an input taxed supply.

● To the extent that the sale relates to the commercial premises that are untenanted the supply to you is a taxable supply.

Section 9-80 of the GST Act deals with supplies that are partly taxable and partly GST-free or input taxed and describes how to work out the value of that part of the actual supply that is a taxable supply.

In addition, Goods and Services Tax Ruling GSTR 2001/8 provides guidance on how to apportion the consideration for a supply that includes both taxable and non-taxable parts.

In particular, GSTR 2001/8 explains that where there is no legislative provision specifying the basis for apportionment, you may use any reasonable method (direct or indirect) to apportion the consideration for a mixed supply. However, the apportionment must be fair and reasonable in the circumstances of the case and not just the method that gives the best result. Plus, you must keep records to explain the method used.

The Contract has provided for the apportionment of the price between the different parts of the Property. However, you have provided a proposed revised apportionment methodology.

We confirm that the proposed revised apportionment methodology set out above is a fair and reasonable method for calculating the amount of input tax credits that you are entitled to claim under Division 11 of the GST Act.

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