Edited version of private ruling

Authorisation Number: 1011649493508

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Ruling

Subject: GST and sale of new residential premise and input tax credits

Question

Are you entitled to claim input tax credits (ITC) on the construction costs of the new residential premise to be sold after completion?

Answer

Yes, you are entitled to claim input tax credits on the construction costs of the new residential premise to be sold after completion

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for goods and services tax (GST).

You are carrying on a leasing enterprise.

You have purchased vacant land in Australia.

You have commenced constructing a new residential premise on the vacant land.

Your new residential premise is expected to be completed next year.

You intend to sell the new residential premise after completion. However there is a chance you may lease the new residential premise prior to sale depending on the market condition.

Reasons for decision

Creditable acquisition

Under section 11-20 of the A New Tax (Goods and Services Tax) Act 1999 (the GST Act) you are entitled to claim GST paid on any creditable acquisition you make.

You make a creditable acquisition under section 11-5 of the GST Act 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.

 

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on an enterprise.

However, under subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that:

· the acquisition relates to making supplies that would be input taxed (for example financial supplies and supplies of residential premises); or

· the acquisition is of a private or domestic in nature.

You have advised that you are building the new residential premise for the purpose of carrying on your enterprise, that is, to sell the premise after completion and the construction costs are incurred in the course of this enterprise. Hence you are not making your acquisitions for a private or domestic purpose or for making supplies that would be input taxed. Hence, paragraph 11-5(a) of the GST Act is satisfied.]

You have also advised that you may lease the premises instead of selling after completion. Please note that if you decide to lease the premise after completion instead of selling it you would be making your acquisitions for making supplies that would be input taxed and paragraph 11-5(a) of the GST Act would not be satisfied.

You provide consideration for the supplies and you are registered for GST. Hence paragraphs 11-5 (c) and 11-5(d) of the GST Act are satisfied.

Accordingly where the supplies to you by your suppliers are taxable supplies (that is where they have charged GST on their tax invoices to you), you will also satisfy paragraph 11-5(b) of the GST Act and your acquisitions will be creditable acquisitions.

Taxable supply

For the supplies by your suppliers to be taxable supply to you all of the following requirements in section 9-5 of the GST Act must be satisfied:

· the suppliers make the supply for consideration; and

· the supply is made in the course of an enterprise that the suppliers carry on in Australia; and

· the suppliers are registered for GST, or required to be registered for GST; and

· the supplies by the suppliers to you are not input-taxed or GST-free.

If the suppliers from whom you make your acquisitions relating to constructing your new residential premise, satisfy all the requirements under section 9-5 of the GST Act, you will satisfy paragraph 11-5(b) of the GST Act.

Hence you will be making creditable acquisitions and you will be entitled to input tax credits for all your acquisitions in relation to constructing the new residential premise.

Additional information

An entity that is registered for GST may construct new residential premises for the purpose of sale as part of an enterprise that the entity is carrying on and would be entitled to ITC for the acquisitions relating to the construction of the new residential premises. However, circumstances may arise such that the premises are leased prior to their sale. In such a case, consideration must be given to the application of Division 129 of the GST Act. This is because the sale of new residential premises is a taxable supply but the lease of new residential premises is an input taxed supply and an acquisition is not for a creditable purpose to the extent that its application relates to making input taxed supplies. In this case you will not be entitled to input tax credits on your acquisitions.

Goods and Services Tax Ruling GSTR 2009/4 explains the Commissioner's view of when an adjustment for a change in extent of creditable purpose arises under Division 129 of the GST Act in relation to acquisitions made in constructing new residential premises

This ruling provides guidance on how to determine the extent to which an acquisition made in constructing new residential premises is applied for a creditable purpose where new residential premises are being held for sale as part of an entity's enterprise, but prior to their sale the new residential premises are leased for a period of time. Please refer to GSTR 2009/4 in our website on www.ato.gov.au