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Ruling
Subject: goods and services tax (GST) and expenses relating to selling your home
Question
Are you entitled to input tax credits on your partners' acquisitions of real estate agent and legal services relating to the sale of their home?
Answer
No.
Relevant facts and circumstances
The partnership of certain individuals (you) is subdividing and developing residential land.
Due to the extensive delays you have experienced in obtaining Council approval to do the latest stage of this work, you have had difficulties in meeting interest payments to the bank for your development loan.
The loan has been secured by mortgages on the development land and on the partners' own home.
To satisfy the bank's demands, the partners have been recently forced to sell their home. The bank has taken the entire proceeds of this sale to reduce the outstanding amount of the loan.
The partners acquired real estate agent and legal services relating to the sale of their home.
You have now received the Council's Construction Certificate and the bank has agreed to provide the required funds to complete the work.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 subsection 11-5(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 11-5(2)
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
Reasons for decision
Summary
As the partners acquired the real estate agent and legal services for the purpose of selling their home, and the sale of their home is a sale of a private or domestic asset, we consider that their acquisitions of these services are acquisitions of a private or domestic nature and you did not acquire these services in carrying on your property development enterprise. Hence, you did not acquire these services for a creditable purpose, and therefore you did not satisfy the requirement of paragraph 11-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
As you did not satisfy all of the requirements of section 11-5 of the GST Act, you did not make creditable acquisitions of these services. Therefore, you are not entitled to input tax credits for these acquisitions.
Detailed reasoning
You are entitled to input tax credits on your creditable acquisitions.
You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:
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.
(*Denotes a term defined in section 195-1 of the GST Act)
Creditable purpose
Subsection 11-15(1) of the GST Act states:
You acquire a thing for a creditable purpose to the extent that you acquire it
in carrying on your *enterprise.
Subsection 11-15(2) of the GST Act states:
However, you do not acquire the thing for a creditable purpose to the extent
that:
1. the acquisition relates to making supplies that would be *input taxed;
or
2. the acquisition is of a private or domestic nature.
As the partners acquired the real estate agent and legal services for the purpose of selling their home, and the sale of their home is a sale of a private or domestic asset, we consider that their acquisitions of these services are acquisitions of a private or domestic nature and you did not acquire these services in carrying on your property development enterprise. Hence, you did not acquire these services for a creditable purpose, and therefore you did not satisfy the requirement of paragraph 11-5(a) of the GST Act.
As you did not satisfy all of the requirements of section 11-5 of the GST Act, you did not make creditable acquisitions of these services. Therefore, you are not entitled to input tax credits for these acquisitions.