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Edited version of private ruling
Authorisation Number: 1011665236103
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Ruling
Subject: Creditable acquisition
Question
Are you making a creditable acquisition when you lease premises to provide your accommodation business?
Answer
No, you are not making a creditable acquisition when you lease premises to provide your accommodation business. This is because the supply to you of the premises is not a taxable supply.
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 GST.
You lease a property from a related entity.
Your entity was created to run an accommodation services business and deal with the individual tenants and provide necessary services including general cleaning, airport transportation services and laundry services.
A lease agreement has been entered into between you and the related entity to reflect the arrangements.
The agreement provides that the rental is set at a specified amount per annum plus GST plus various outgoings.
Your accountant is also the accountant for the related entity. He has advised that following the purchase of the premises by the related entity the ATO determined that the supply to the related entity represented an input taxed supply of residential premises.
The premises are classified by the local council as a Rooming Facility under the current health legislation in that State.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to an input tax credit for any creditable acquisition that you make.
· Section 11-5 of the GST Act provides that you make a creditable acquisition if:
· you acquire anything solely or partly for a creditable purpose and
· the supply of the thing to you is a taxable supply and
· you provide, or are liable to provide, consideration for the supply and
· you are registered, or required to be registered.
Under section 40-35 of the GST Act, a supply of premises that is by way of lease, hire or license is input taxed if 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).
You will provide consideration in the form of monthly rental payments and you are registered for GST. It is therefore necessary to consider whether the supply of the premises to you by your related entity is a taxable supply and if so whether you are acquiring the premises for a creditable purpose.
Your accountant has advised that the premises supplied to you under lease by your related entity are residential premises and were purchased as residential premises by the supplier.
Therefore, it has been established that the supply of the premises to you by way of lease from your related entity is a supply of residential premises under section 40-35 of the GST Act and is therefore input taxed.
As the supply to you by your related entity is not a taxable supply it follows that you cannot be making a creditable acquisition when you pay the lease payments for use of the premises in your accommodation business as you do not satisfy paragraph 11-5(b) of the GST Act (see above). As all paragraphs of section 11-5 of the GST Act must be met it is not necessary to consider paragraph 11-5(a) of the GST Act.