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Edited version of private ruling
Authorisation Number: 1011681380806
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Ruling
Subject: GST and supply of new residential premises
Question 1
Are you able to claim an input tax credit for creditable acquisitions that you have made in the tax period in which you have made a progressive payment to the supplier?
Answer
You may claim an input tax credit in the tax period in which you make a progressive payment to the supplier when you hold a valid tax invoice.
Question 2
Are you entitled to claim an input tax credit if you lease the property to a GST-registered entity?
Answer
No, you are not entitled to claim an input tax credit if you lease the property to a GST-registered entity.
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 registered for goods and services tax (GST).
You are carrying on a commercial leasing enterprise.
You have purchased vacant land.
You have commenced constructing new residential premise on the vacant land.
You intend to sell the new residential premise after completion. However you may lease the new residential premise prior to sale depending on the market condition.
You account for GST quarterly on a cash basis.
Question one assumes that you have made a creditable acquisition. If the acquisition ultimately results in making an input taxed supply (that is, you rent the house), you will have a change of creditable purpose and will need to make an adjustment as detailed in Goods and Services tax Ruling GSTR 2009/4.
Reasons for decisions
Question 1
Division 29 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is about attribution rules which outline the tax periods to which taxable supplies, creditable acquisitions and adjustments are attributable.
Section 29-10 of the GST Act sets out the basic rules for attributing the input tax credits for your creditable acquisitions. These rules determine the earliest tax period in which an input tax credit can be claimed.
Subsection 29-10(2) of the GST Act provides that, if you account for GST on a cash basis and you provide part of the consideration in a tax period, the input tax credit for the acquisition is attributable to that tax period but only to the extent that you provided the consideration in that tax period.
In your case, you will be providing part of the consideration for your acquisition when you make progressive payments to the supplier. Pursuant to subsection 29-10(2) of the GST Act, you can claim an input tax credit on your creditable acquisition but only to the extent of the progressive payment that you make in relation to that acquisition. .
However, you can not claim an input tax credit on the tax period on which you make a progressive payment if you do not hold a tax invoice when you lodge your BAS for that tax period. Rather, you can claim the input tax credit in the first tax period for which you lodge a BAS at a time when you hold a tax invoice.
Question 2
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 of the GST Act states that you make a creditable acquisition if:
§ you acquire anything solely or partly for a creditable purpose,
§ the supply of the thing to you is a taxable supply,
§ you provide, or are liable to provide consideration for the supply, and
§ you are registered or required to be registered.
You acquire a thing for a creditable purpose to the extent that you make the acquisition in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to a supply that would be input taxed.
Section 40-35 of the GST Act states that a supply of premises by way of lease, hire or licence is input taxed if the supply is of residential premises. The characteristics of a supply of residential premises do not change whether the recipient is registered or not registered for GST.
Therefore, the supply of your residential premise by way of lease to a GST registered entity is an input taxed supply. As such, the acquisitions you make in relation to constructing and leasing the residential premise will not be for a creditable purpose, therefore you are not entitled to claim an input tax credit for those acquisitions when you lease the residential premise.