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Ruling

Subject: Input Tax Credits on acquisition of land

Question 1

Are you entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the acquisition of land?

Answer

Yes, you may be entitled to an input tax credit under section 11-20 of the GST Act provided the requirements of section 11-5 of the GST Act are satisfied.

Question 2

How much are the input tax credits under Division 11 of the GST Act for the acquisition of the land?

Answer

The amount of the input tax credits available will be the amount identified in the relevant tax invoice.

Relevant facts and circumstances

You have been registered for GST since 2009.

A previous owner of the Land leased part of the land to commercial entities and resided on the remainder. The residential premises were then rented until 2008 after which the residential premises were left vacant.

Under an agreement you acquired a 50% Tenants in common interest in the land.

The property contains three distinct parts as follows:

· the front of the property is leased for commercial purposes;

· residential premises are situated in approximately the middle of the land within a fence line; and

· the rear of the land remains unimproved and is vacant.

The residential premises were used for residential accommodation before 1998.

The commercial leases were in place when the real property interest was transferred to the vendor in 2008.

The leases were not altered and remained as they were when the vendor transferred the Land to you.

At settlement there was no adjustment made in relation to lease receipts or expenses.

The sale was for consideration and is connected with Australia.

The contract sale price is GST inclusive.

The residential premises ceased being used for residential accommodation in 2008.

The condition of the residential premises had no effect on the supply. Its condition was irrelevant because there was a development approval which would ultimately require the demolition of the premises.

The tenancy of the premises was pursuant to a verbal agreement.

The vacant land was not accessible from the residential premises because it was fenced off.

The tenant's use of the vacant land at the rear of the lot was restricted.

At the time of acquisition of the half interest the entire parcel held the benefit of a development approval for development for mixed uses. The vacant land at the rear of the lot was and had not been used for any specific purpose pending the resolution of development issues and the obtaining of operational works permits.

Reasons for decision

Question 1.

Are you entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the acquisition of land?

Detailed reasoning

Under section 11-20 of the GST Act, you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act relevantly provides that you make a creditable acquisition 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.

To be entitled to claim an input tax credit all of the above requirements must be satisfied.

Acquisition

Section 11-10 of the GST Act gives the meaning of acquisition and provides that an acquisition is any form of acquisition whatsoever, including an acceptance of a grant, assignment or surrender of real property (see paragraph 11-10(2)(d) of the GST Act). The acquisition of the interest relating to land is an acquisition for GST purposes.

Creditable purpose

Section 11-15 of the GST Act gives the meaning of creditable purpose and provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, 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.

You have stated that you acquired the land for the purpose of development and sale. In the circumstances, it is unlikely that you would make a supply of the land that would be input taxed under Division 40 of the GST Act.

We accept you acquired the land for a creditable purpose in carrying on your enterprise of property development.

Taxable supply

Taxable supply has the meaning given by sections 9-5 (the basic definition) of the GST Act. A thing is a taxable supply to you if the supply satisfies the requirements of section 9-5 of the GST Act. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

A supply of land may incorporate both taxable and non-taxable parts. Paragraphs 45 to 55 of Goods and Services Tax Ruling GSTR 2001/8, GST: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), explain how the separate parts can be identified.

A requirement of section 9-5 of the GST Act is that the supply is made in the course or furtherance of an enterprise that the supplier carries on. Based on the information provided, it is not clear that the supply was made in the course or furtherance of an enterprise that the vendor carried on.

It appears that the vendor acquired the interest in the land with the various leases in place. The interest the vendor supplied to you was the same interest the vendor acquired. The vacant land, in particular, does not appear to have been used for any purpose or as part of any enterprise.

The supply to you will be a taxable supply in whole or in part only if the vendor satisfies the positive requirements of section 9-5 of the GST Act.

Input taxed

Section 40-65 of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation.

An area of vacant adjacent land may also be input taxed if it satisfies the requirements of section 40-65 of the GST Act. Paragraph 31 of Draft Goods and Services Tax Ruling GSTR 2011/D2 GST: residential premises and commercial residential premises, provides:

There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent that the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building.

The requirement for residential premises to be fit for human habitation is discussed at paragraph 134 of GSTR 2011/D2, which states:

The condition of the premises supplied is relevant to deciding whether they are capable of being occupied as a residence or for residential accommodation. To be residential premises as defined, premises must be fit for human habitation. Premises are not suitable for human habitation if they are in a dilapidated condition which prevents occupation for residential accommodation (for example, as may be evidenced by a demolition notice issued by the relevant authority because of the premises' condition). In these circumstances, the condition of the premises would indicate that the premises are no longer capable of providing shelter and the basic living facilities. However, residential premises that are in a temporary state of disrepair remain residential premises.

Subsection 9-30(4) of the GST Act provides that a supply is also taken to be a supply that is input taxed if it is a supply of anything (other than new residential premises) that you have used solely in connection with your supplies that are input taxed but are not financial supplies. This would include adjacent land supplied as part of the residential premises.

In our view, on the basis of the information provided, the supply of the residential premises (middle of lot) would be an input taxed supply under section 40-65 of the GST Act. The supply of the vacant unimproved land (rear of lot) was supplied as part of the residential premises. This area of land will be input taxed under section 40-65 of the GST Act.

The land subject to commercial leases will not be input taxed.

Consideration

You provided consideration for the supply at settlement.

Registration

You are registered or required to be registered for GST.

Conclusion

As your acquisition of the land was for a creditable purpose, you may be entitled to an input tax credit under section 11-20 of the GST Act provided the requirements of section 11-5 of the GST Act are satisfied.

Question 2.

How much are the input tax credits under Division 11 of the GST Act for the acquisition of the land?

Detailed reasoning

Under section 11-20 of the GST Act, you are entitled to an input tax credit for any creditable acquisition that you make. Under section 11-25 of the GST Act, the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

Under subsection 29-10(3) of the GST Act, you must also hold a tax invoice for the creditable acquisition when you claim the input tax credit (or any part of the input tax credit) on the acquisition.

Generally, the provision of a tax invoice is prima facie evidence that a supply was, in whole or in part, a taxable supply and will clearly identify the supplier. The absence of a tax invoice is an indication that the supply was not a taxable supply.

The supplier of a taxable supply must, under subsection 29-70(2) of the GST Act, give to the recipient a tax invoice for the supply within 28 days of the recipient of the supply requesting it.

Goods and Services Tax Ruling GSTR 2000/28 GST: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract explains when you may account for input tax credits on the sale of land under a standard land contract.

Goods and Services Tax Ruling GSTR 2006/4 GST: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose, explains the Commissioner's view on the meaning of 'creditable purpose' in Division 11 of the GST Act.

Conclusion

To the extent you satisfy the requirements of section 11-5 of the GST Act in making a creditable acquisition, you are entitled to claim input tax credits for the acquisition of the land. You are not entitled to claim input tax credits in relation to any portion of the land that was acquired as an input taxed supply.