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Edited version of your written advice

Authorisation Number: 1051282012934

Date of advice: 13 September 2017

Ruling

Subject: GST and creditable acquisitions

Question 1

Is the Partnership able to claim input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for building the kit home on their property?

Answer

No.

Question 2

Is the Partnership able to claim input tax credits under section 11-20 of the GST Act for repairs and maintenance costs and other costs associated for the kit home and three cottages on the Partnership’s property?

Answer

No.

Relevant facts and circumstances

The Partnership is a resident entity with a cattle, sheep and cropping farm. The Partnership is registered for GST.

The Partnership had a new kit home placed on the property. This home replaced the former house which was run down and dilapidated.

The purpose of this new kit home is to provide the farm supervisor with a place to live as the property requires full time supervision. In effect the farm supervisor is also a caretaker for the property on a 24 hour 7 day a week basis. The property requires full time supervision due to the following reasons:

The main reason for the kit home is for security as it is situated at a place on the property which provides full view of the garages/sheds and a view of where all the entrance roads meet. It provides better security than the previous redundant home.

Part of the kit home also contains the office for the property. The following people have access to use the office when they need to:

If the property did not require full time supervision then the kit home would not have been built, a small office would have been established for employees mentioned above.

The farm supervisor/caretaker does not pay any rent to live in the kit home.

The contract of employment provides for the supply of a fully maintained Farm Supervisor’s house (the new kit home) as part of the benefits of the arrangement. This benefit is estimated to account for rent of approximately $xxx per week.

The Partnership wishes to claim the GST on the building of the new kit home. The cost of the kit home including fencing.

Furthermore, the Partnership has determined that due to the remote nature of the property it would be very difficult to obtain hired security for such a rural property and the 24/7 security needed would be a prohibitive cost.

The other buildings on the rural property that this GST application applies to are three Cottages. Cottage 1 is kept vacant expect when other staff stay when they visit the property for business related purposes. Cottage 2 and 3 are used by staff to live in rent free and they are required to live on the property due to the remote location.

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 11-20,

A New Tax System (Goods and Services Tax) Act 1999 section 40-35, and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

Question 1

Under section 11-20 of the GST Act, an entity is entitled to claim input tax credits for creditable acquisitions that it makes.

Section 11-5 of the GST Act provides that an acquisition is creditable where all of the following conditions are met:

Section 11-15 of the GST Act 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 a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

You placed a kit home on your property to be used by your employees for residential accommodation and for the security of the property.

Subsection 40-35(1) of the GST Act provides:

Residential premises

The term 'residential premises' is defined in section 195-1 to mean land or a building that:

The kit home meets the definition of ‘residential premises’. Therefore, it is necessary to consider if your supply of the kit home meets the requirements of section 40-35 to be input taxed.

The precondition of section 40-35 is that the supply of premises is by way of lease, hire or licence.

'Licence' is not defined in the GST Act. Therefore, it takes its ordinary meaning.

The Macquarie Dictionary definition of licence includes 'formal permission or leave to do or not to do something'. Your granting of permission for your employees to use the premises meets this definition of licence.

Commercial residential premises

'Commercial residential premises' is also defined in section 195-1 to include a hotel, motel, inn, hostel, boarding house or anything similar. In this case we do not consider your supply of employee accommodation satisfies the definition of 'commercial residential premises'.

Employee accommodation

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6), at paragraph 69, provides an example of employee accommodation. Whilst the factual situation is slightly different to yours the principles are the same. The result is that a supply in your situation is considered to be an input taxed supply.

As discussed above, your supply of the kit home is not 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.

Therefore, your supply of the kit home as residential premises will be input taxed in accordance with section 40-35 of the GST Act. Accordingly, the acquisitions that you make in respect to these premises are not creditable acquisitions under section 11-5. Therefore, you will not be able to claim an input tax credit under section 11-20.

Please note that the employment status (full-time/part-time/ casual/itinerant) of the occupant of the premises is not a factor when determining the GST treatment of those premises. Subsection 40-35(2) of the GST Act provides the supply of residential premises will be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation). Therefore the period of occupation or intended occupation of land or a building is not relevant in determining whether premises are residential premises.

The test of whether the premises are ‘residential premises’ or not is interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Where such premises have the physical characteristics to provide shelter and basic living conditions (such as bedroom, bathroom and kitchen facilities), the premises will meet the definition of 'residential premises'. This will be the case regardless of the fact that part of the premises may be used as an office or for some other purpose such as security reasons.

This position is also supported under paragraphs 58 and 59 of Goods and Services Tax Ruling GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits.

Example 10

Question 2

As discussed above, 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 a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed as per the discussion above in question 1.

In this case, the costs of repairs and maintenance would be acquired for a kit home and/or one of the other three cottages situated on the property which would relate to your input taxed supply of accommodation of residential premises to your employee and other staff. Therefore, you are not entitled to an input tax credit pursuant to section 11-20 of the GST Act as you do not make a creditable acquisition.


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