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Ruling

Subject: GST and input tax credits for cost of constructing residential premises

Question

Are you entitled to claim input tax credits for the construction costs of new residential premises under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the residential premises is constructed for rental purposes?

Answer

No, you are not entitled to claim input tax credits under section 11-20 of the GST Act on the construction costs of new residential premises constructed for rental purposes.

Relevant facts and circumstances

You are carrying on an enterprise of renting commercial premises and are registered for goods and services (GST).

The commercial premises being an office is currently rented to a professional practice.

You are constructing a two bedroom unit next to the commercial premises.

The unit is on the same title as the commercial premises.

The construction of the unit will be for rental purposes. The current tenant of the commercial premises will be renting the unit to provide accommodation during the working week to the partners of the professional practice.

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act lists the requirements that must be satisfied for an entity to make a creditable acquisition. One of those requirements is that the entity must acquire the thing solely or partly for a creditable purpose (paragraph 11-5(a) of the GST Act).

Section 11-15 of the GST Act defines the meaning of creditable purpose. An entity does not acquire a thing for a creditable purpose to the extent that:

· the acquisition relates to making supplies that would be input taxed (paragraph 11-15(2)(a) of the GST Act); or

· the acquisition is of a private or domestic nature (paragraph 11-15(2)(b) of the GST Act).

The supply of residential premises by way of lease is an input taxed supply under section 40-35 of the GST Act.

Goods and Services Tax Ruling GSTR 2009/4 provide guidance on how to determine the extent to which an acquisition made in constructing new residential premises is applied for a creditable purpose.

Paragraph 29 of GSTR 2009/4 provides that if an entity constructs new residential premises to use solely by way of leasing the residential premises, the entity's acquisitions made in constructing the premises will relate solely to making supplies that would be input taxed. As such, the entity will not be making the acquisitions for a creditable purposes under paragraph 11-15(2)(a) of the GST Act. The entity will not be entitled to input tax credits in relation to the acquisitions.

In your case, you intend to lease the unit upon completion. You, therefore, will be making an input taxed supply of residential premises by way of lease. With regard to the acquisitions made in constructing the premises, you are making acquisitions that relate to making supplies that would be input taxed. As such, you are not making acquisitions for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. Therefore, the requirements of section 11-15 of the GST Act are not satisfied.

As you are not making any creditable acquisitions, you are not entitled to claim input tax credits for the construction and acquisition costs of the residential premises under section 11-20 of the GST Act.