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Edited version of your written advice
Authorisation Number: 1051350280800
Date of advice: 16 March 2018
Ruling
Subject: GST and acquisition of property
Question
Did you make a creditable acquisition for the purposes of section 11-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when you purchased property situated at a specified location?
Answer
No
This ruling applies for the following period(s)
1 July 2016 – 30 June 2017
1 July 2016
Relevant facts and circumstances
You are registered for GST.
You purchased Property located situated at a specified location (the Property).
As at the time of settlement, the Property consisted of land and a single dwelling containing four bedrooms, two bathrooms and two car spaces. Further, the Property also has a kitchen, laundry, bathroom, doors and windows along with intact ceiling, walls and roof. There was no apparent damage to the Property. The Property also contained a smoke alarm, light fittings with lightbulbs.
At the time of settlement the Property was vacant as the original owner had passed away. A number of pieces of furniture (e.g. wardrobe, couches and shelving) were still on the Property at the time of settlement.
The Property did not have any contamination or demolition/building notices from the relevant Council at the time of settlement.
Utilities (electricity, gas, water and telephone) were not connected to the Property at the time sale.
The Property is zoned by the Council as residential.
Since purchasing the Property, you have demolished the existing dwelling and begun redevelopment for residential townhouses.
Relevant legislative provisions
A New Tax System (Goods and Services Tax Act) 1999
Section 9-5
Section 11-5
Paragraph 11-5(b)
Section 11-20
Section 40-65
Subsection 40-65(2)
Section 195-1
Reasons for decision
Note: In this reasoning, unless otherwise stated,
● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au
Section 11-20 states that you are entitled to an input tax credit (ITC) for any creditable acquisition that you make.
One of the requirements of making a creditable acquisition is that the supply to you was a taxable supply (paragraph 11-5(b)).
Section 9-5 provides that you make a taxable supply if:
(a) you make the supply for consideration; and
(b) the supply is made in the course or furtherance of an enterprise that you carry on; and
(c) the supply is connected with the indirect tax zone; and
(d) you are registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The issue in this case is whether the supply of the Property to you was an input taxed supply and thus, not a taxable supply.
Section 40-65 provides that the sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, the sale is not input taxed to the extent that the residential premises are:
(a) commercial residential premises; or
(b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.
The term ‘residential premises’ is defined in section 195-1 as 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 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises.
Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 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. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.
In this case the Property consisted of four bedrooms, two bathrooms, kitchen, laundry and two car spaces. Furthermore, the ceiling, walls and roof were intact as at the time of settlement. As such we consider that at the time of settlement the Property exhibited the characteristic of providing shelter containing basic living facilities.
Please note that paragraph 10 of GSTR 2012/5 discusses that the requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation. This issue is illustrated in Example 1 at paragraphs 12 and 13 of GSTR 2012/5 where, in a similar scenario to that in this case, the purchaser’s intention to demolish the existing premises to develop and build new premises does not alter the GST characterisation of the sale.
Paragraph 20 of GSTR 2012/5 provides that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation. In this case, whilst utilities to the Property had been disconnected, we do not consider that this would render the Property unfit for human habitation.
The final step is to consider whether the supply of the Property to you fell within the exclusions in subsection 40-65(2) of being a supply of ‘commercial residential premises’ or ‘new residential premises’. In this case we consider the Property to neither satisfy the definition of ‘commercial residential premises’ nor the definition of ‘new residential premises’.
Given the above, we consider the Property satisfies the definition of ‘residential premises’ as defined for GST purposes and as such, the supply of the Property to you was an input taxed supply. Consequently, you have not made a creditable acquisition for the purposes of section 11-5 and are therefore not entitled to an input tax credit pursuant to section 11-20.
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