Edited version of private advice

Authorisation Number: 1052341960294

Date of advice: 23 December 2024

Ruling

Subject: GST - taxable supply

Question 1

Is the supply by you of the property by way of a head lease to a specialist disability accommodation (SDA) provider, a taxable supply under section 9-5 of A New Tax System (Goods and Services) Act 1999 (GST Act)?

Answer 1

No. The supply by you to the SDA provider of the leased Property is not a taxable supply as it is considered an input taxed supply

Question 2

Can you claim input tax credits for acquisitions made to construct the SDA dwelling and future ongoing management of the Property under section 11-20 of the GST Act?

Answer 2

No. As the acquisitions made for construction of the SDA dwelling and future ongoing management costs relate to an input taxed supply, you are not entitled to any input tax credit.

Question 3

Does Division 142 of the GST Act apply to prevent the refund of excess GST on the supply of the Property?

Answer 3

Yes, Division 142 applies to prevent a refund of the excess GST, where it is identified that the GST was passed on and the supplier has not reimbursed the recipient of the supply. In addition, a 4-year time limit applies under section 155-35 of Schedule 1 to theTax Administration Act 1953(TAA) which prevents amendments to assessments where the time limit under the law has expired. The Commissioner has no discretion to extend the 4-year time limits.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You entered a contract to purchase a land and house package on DDMMYYYY

The reason for the purchase of the Property was to provide Specialist Disability accommodation (SDA) for up to 20 years.

You registered for an Australian Business Number (ABN) and Goods and Services Tax (GST) at the time of purchase.

You registered for GST on the assumption that you were going to operate a business with an expected turnover greater than $75,000.

You based your requirement to register for GST on the ATO website and conversations with two accountants.

The land purchase excluded GST; however, the construction contract was inclusive of GST.

Construction of the Property commenced in DDMMYYYY, ending in DDMMYYYY.

The Property is categorised as a High Physical Support property under the SDA Design Standard. This means the Property will be for tenants in need of high levels of support (as defined under the National Disability Insurance Scheme Act 2013 (NDIS Act)).

You claimed input tax credits in relation to construction of the Property in your business activity statements (BAS).

You have never registered as an SDA provider with National Disability Insurance Scheme (NDIS). You have always worked with SDA providers to lease the Property.

The Property was enrolled as an SDA dwelling with the NDIS by the SDA providers you engaged.

You engaged your first SDA provider in DDMMYYYY to enter into a head lease agreement, however the head lease agreement with the first SDA provider never got to the signing stage.

You engaged the second SDA provider and signed a head lease agreement on DDMMYYYY.

For several months since the construction of the Property, although second SDA provider was not able to find tenants for the Property, you received a monthly lease payment which included GST.

Your second SDA provider issued recipient created tax invoices (RCTIs), applying 10% GST starting from DDMMYYYY to DDMMYYYY. You lodged your BAS for the tax periods reporting and remitting the GST component of these RCTIs to the ATO.

Your second SDA provider stopped actively advertising the Property for lease in DDMMYYYY. The contract with your second SDA provider was terminated after failing to acquire a tenant.

On DDMMYYYY, you put the Property on the market as after such a long time of not finding a tenant, you wanted to reduce your risk and stop paying the interest.

When the Property didn't attract a suitable offer, you took it off the market and engaged with your third SDA provider.

Your third SDA provider started taking potential tenants through the Property in DDMMYYYY. The head lease agreement was signed on DDMMYYYY.

You deregistered from GST based on your new understanding of the correct GST treatment.

According to our records you deregistered for GST on DDMMYYYY.

In DDMMYYYY, your real estate agent advised you of a potential buyer for the Property. Your real estate agent had mentioned the Property to the potential buyer even though the Property was off the market. You received an offer to purchase the Property on DDMMYYYY.

Settlement date was scheduled for early DDMMYYYY, however the buyer failed to obtain finance, and the contract was terminated on DDMMYYYY.

A new head lease agreement was entered into DDMMYYYY with your fourth SDA provider.

At the moment, you are happy leasing the Property, and might consider a sale in the future.

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 9-30.

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 38-38.

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

A New Tax System (Goods and Services Tax) Act 1999 Division 129.

A New Tax System (Goods and Services Tax) Act 1999 Division 142.

Tax Administration Act 1953 - section 155-35.

Reasons for decision

All references are to the A New Tax Systems (Goods and Services Tax) Act 1999 unless specifically stated.

Question 1

Summary

The supply by you to the SDA Provider of the leased Property is not a taxable supply as it is considered an input taxed supply.

Detailed reasoning

Section 9-5 provides you make a taxable supply if:

•                     you make the supply for consideration; and

•                     the supply is made in the course or furtherance of an enterprise that you carry on; and

•                     the supply is connected with the indirect tax zone; and

•                     you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Section 40-35 of the GST Act relates to residential rent:

1)             A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxedif:

a)            the supply is of residential premises (other than 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); or

b)            the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87- 25.

1A)             ...

2)             However:

a)            the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and

b)            the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a long-term lease.

The supply being made under the head lease to the SDA provider is considered input taxed as it is a supply of residential rent under section 40-35.

Under section 38-38 of the GST Act, a supply to a NDIS participant is GST-free if all of the following requirements are met:

a)            is a supply to a participant (within the meaning of the National Disability Insurance Scheme Act 2013) for whom a participant's plan is in effect under section 37 of that Act; and

b)            is a supply of one or more of the reasonable and necessary supports specified in the statement included, under subsection 33(2) of that Act, in the participant's plan; and

c)            is made under a written agreement, between the supplier and the participant or another person, that:

               i.        identifies the participant; and

               ii.        states that the supply is a supply of one or more of the reasonable and necessary supports specified in the statement included, under subsection 33(2) of that Act, in the participant's plan; and

d)            is of a kind that the * Disability Services Minister has determined in writing.

Goods and Services Tax Ruling, GSTR 2006/9: Supplies (GSTR 2006/9) provides the Commissioner's view regarding supplies. Relevantly, paragraph 155 of GSTR 2006/9 states:

155. Under the GST health provisions in Subdivision 38-B, subject to certain exceptions, the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply. This outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves. Where this requirement is imposed, a GST-free supply of a health service cannot be made to a business entity or a non-profit body.

In this case, the supply is not being made by you to a NDIS participant, rather you entered into a head lease with the SDA provider. On this basis, you do not satisfy the requirements of section 38-38 of the GST Act.

Question 2

Summary

As the acquisitions are made for construction of the SDA dwelling and future ongoing management costs relate to an input taxed supply, you are not entitled to any input tax credit.

Detailed reasoning

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

Section 11-5 provides that you make a creditable acquisition if all of the following criteria are satisfied:

a)            you acquire anything solely or partly for a creditable purpose (i.e. to the extent you acquire the thing in carrying on your enterprise except to the extent the acquisition relates to making input taxed supplies or is of a private or domestic nature)

b)            the supply to you was a taxable supply

c)            you provide, or are liable to provide, consideration for the supply

d)            you are registered or required to be registered.

The relevant issue here is whether your acquisitions for the construction of the property (goods and services) from the builder is for a creditable purpose under section 11-15(a).

As outlined in question one you have acquired the construction services in relation to making input taxed supplies. Therefore, you are not making a creditable acquisition.

Question 3

Summary

Division 142 applies to prevent a refund of the excess GST, where it is identified that the GST was passed on and the supplier has not reimbursed the recipient of the supply. In addition, a 4-year time limit applies under section 155-35 of Schedule 1 to theTax Administration Act 1953 (TAA) which prevents amendments to assessments where the time limit under the law has expired. The Commissioner has no discretion to extend the 4-year time limits.

Detailed reasoning

Division 142 generally restricts refunds when you make an overpayment of GST to ATO where a refund may result in a windfall gain.

Excess GST is defined in subsection 142-5(1) as an amount that has been taken into account in an assessed net amount but in fact is not payable. Under section 142-10, if the excess GST has been passed on to another entity, that excess GST is taken to have always been payable until the passed-on GST is reimbursed to the other entity.

However, if the excess GST has not been passed on, section 142-10 does not apply and the supplier may request an amendment to their assessment for the relevant tax period to reduce the amount of GST attributable to that tax period. Any resulting refunds are then to be paid or applied in accordance with Division 3 and 3A of Part IIB of the TAA.

Goods and Services tax Ruling 2015/1 Goods and services tax: meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1) notes that whether the excess GST has been passed on is a question of fact and must be determined on a case-by-case basis taking into account the particular circumstances of each case.

Paragraphs 24-27 of GSTR 2015/1 state:

24. The Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No 1) Bill 2014 states that the GST envisages that the supplier 'passes on' the GST to the recipient of the supply. This simply reflects the design of the GST as an indirect tax which is generally expected to be passed on to the customer when a supply is made as a taxable supply.

25. If excess GST is included on a tax invoice, this is prima facie evidence that the excess GST has been passed on.

26. However, while there is a general expectation that, in ordinary circumstances, excess GST has been passed on, particular facts and circumstances of an individual case may demonstrate that excess GST has not been passed on.

27. A supplier claiming a refund, because it considers that the excess GST has not been passed on, will need to clearly substantiate the grounds on which it claims the refund. In any dispute, the taxpayer would have the onus of proving that its circumstances are outside the ordinary and that it did not pass on the excess GST.

As outlined in paragraph 24 of GSTR 2015/1, the GST Act envisages that the supplier 'passes on' the GST to the recipient.

The question of passing on is one of fact and not of fairness - considerations of fairness may be relevant in deciding whether the Commissioner exercises the discretion under subsection 142-15(1) but are not relevant to whether excess GST has been passed on.

The Commissioner provides, in paragraph 28 of GSTR 2015/1 a list of factors that should be considered in determining whether the excess GST has been passed on to recipients. This includes:

•                     the manner in which the excess GST arose

•                     the supplier's pricing policy and practice

•                     the documentary evidence surrounding the overpayment, and

•                     any other relevant circumstances

The manner in which the excess GST arose

In this case, the excess GST arose because you treated the supply of the Property to the SDA provider as a taxable supply and reported an amount of GST payable on your DDMMYYYY to DDMMYYYY quarter BAS. The reported GST payable was $amount. Therefore, there is an amount of excess GST of $amount.

The suppliers pricing policy

Paragraph 40 of GSTR 2015/1 states the supplier's pricing policy and practice involves considering your conduct and knowledge at the relevant time of setting the price of a supply and whether there have been any changes in the price to account for GST.

Pricing was determined when the head-lease was signed for the supply of the accommodation to the SDA Providers. The head lease agreement stated the supply price was inclusive of GST.

Based on the evidence provided, it is inconclusive as to whether there has been any change in the pricing of the accommodation due to the change in GST treatment.

Paragraphs 41-42 and 45-46 of GSTR 2015/1 states:

41. Where a supplier sets a price with the knowledge or belief that the transaction is subject to GST, including a belief that the GST which later proves to be an overpayment is a real cost of doing business, that will point towards a finding that the excess GST has been passed on.

42. This may be demonstrated where the price charged is calculated so as to exceed costs (including GST) by a profit margin. Even if there is very little or no profit margin, this will not necessarily mean that the GST was not taken into account as a cost.

45. A supplier may seek to demonstrate that GST was not considered when setting the price, it charged its customers. This is not, of itself, sufficient to establish that the excess GST has not been passed on. For example, where a supplier is a 'price taker' in a market that primarily makes taxable supplies, this usually indicates that the supplier has passed on the excess GST. The fact that the supplier may not have been aware of the GST cost when setting its prices is not enough by itself to demonstrate that GST has not been passed on.

46. On the other hand, where a supplier sets its prices to a market that primarily makes non-taxable supplies, this may tend to support a conclusion that the supplier has not passed on the excess GST.

Although you are primarily providing input taxed supplies in a market that is making input taxed supplies of residential premises, this is not the only factor that is considered when determining whether GST has been passed on to the recipient.

The invoices you provided predating your GST deregistration 20 June 20YY had GST inclusive in price, however you have not provided any invoices since the deregistration of your GST to show if the pricing has changed.

documentary evidence surrounding the over payment

You provided documentary evidence in the form of invoices which identified the supply of the Property was inclusive of GST. In addition, you lodged BAS remitting the amounts of GST to the ATO.

Any other relevant circumstances

You have been treating the supplies of the Property as taxable supplies since you registered for GST. This is evidenced by the fact that you have reported GST on your BAS for all supplies made by you. You have also claimed input tax credits relating to acquisitions made in relation to the construction and management of the Property.

Paragraph 31 of GSTR 2015/1 details some common circumstances where excess GST may arise. It includes, incorrectly treating a supply as a taxable supply when it is not, as is the case in your circumstances, and miscalculating a GST liability under the GST law.

Paragraph 32 of GSTR 2015/1 provides that where an error occurs after the transaction has taken place, e.g. through a simple transcription error, this may point towards a finding that excess GST has not been passed on.

Paragraph 33 of GSTR 2015/1 states that where the excess GST arises as a result of an error made before setting the price (for example where the supplier incorrectly treats an input taxed supply as a taxable supply), this error will generally flow through to the sale price paid by the recipient and is likely to point towards a finding that excess GST has been passed on.

We do not consider that the excess GST in your case arose from an error before or after the transactions took place. As stated above, you have always treated your supplies as taxable supplies as you thought this was the correct GST treatment.

It was not until you reviewed the ATO website and conducted further research, that you were made aware that your supplies of accommodation were in fact input taxed supplies.

Paragraph 57 of GSTR 2015/1 provides that whether GST is included in the price of a supply or not may be demonstrated by the documents surrounding the transaction. For example, the invoices or statements issued, a contract or other correspondence between the parties may indicate that GST was included in the price.

Although the invoices issued to the recipients of the accommodation rarely showed an amount of tax, your business model was based on the fact that you were registered for GST and that you were required to remit GST to the ATO. This is evident from your reporting for GST purposes. This indicates that you held yourself out as being registered for GST.

Conclusion

Having regard to the matters relevant to determining whether excess GST has been passed on as set out in GSTR 2015/1, and the particular facts and circumstances of this case, we consider that the excess GST has been passed on.

As there is excess GST and it has been passed on to the lessee, under section 142-10 the excess GST is treated as having always been payable on a taxable supply until you reimburse the other party for the passed-on GST. Therefore, the Commissioner will not exercise his discretion to refund you the excess GST.

Accordingly, you will need to reimburse your SDA provider for the GST component of the issued RCTI's before any amendments can be made on your BAS. You would need to advise your SDA provider to adjust their RCTI to remove the GST component.

Claiming input taxed credits

In relation to the statement that you have claimed input taxed credits during the ownership period, please refer to the following information and take appropriate action accordingly.

An entity that is registered for GST is entitled to input tax credits for creditable acquisitions made in carrying on its enterprise.

The amount of the input tax credit to which an entity is entitled depends on the extent to which the acquisition is for a creditable purpose. The Commissioner's view is that the creditable purpose tests in sections 11-15 focus on an entity's intended use of an acquisition or, in other words, an entity's planned use. After an acquisition is made, the extent to which it is actually applied or used for a creditable purpose may be different from the intended use. Adjustments for changes in the extent of creditable purpose are provided for in Division 129 of the GST Act. In your case, the supply of the property is an input supply as outlined in question. Additionally, you would not be entitled to input tax credits as you did not make a creditable acquisition in carrying on an enterprise as outlined in question two. Division 129 is not applicable to your situation.

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