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Ruling
Subject: GST and a taxable supply of property
Question 1
Is the purchase of the property by Entity A from Entity B a creditable acquisition?
Answer
Yes.
Relevant facts and circumstances
Entity A has purchased the property from Entity B. The property is vacant land and is zoned for medium density housing.
The contact for sale of land sets out the vendor as Entity B and the purchaser as Entity A for the amount of $XXX (GST exclusive).
Furthermore, a Transfer document has been provided that sets out the Transferor as Entity B and the Transferee as Entity A
Under a clause of the contract the purchaser must inform the vendor's solicitor in writing within 7 days from the date of this contract whether the purchaser wishes to proceed by way of option one or option two. If the purchaser does not notify the vendor within the required time the GST payable by the purchaser under the contract will be as per option one and will be GST calculated using the ordinary method.
Entity A did not inform the vendor's solicitor in writing that they wished to proceed by way of option one or option two.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 11-5.
Reasons for decision
If you make an acquisition and the other requirements of section 11-5 of the GST Act are satisfied then the acquisition is a creditable acquisition and you'll be entitled to an input tax credit.
You make a credit acquisition under section 11-5 of the GST Act 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 for GST.
You acquire a thing for a creditable purpose to the extent you acquire it in carrying on your enterprise and it does not relate to you making input taxed supplies or it is of a private or domestic nature.
Hence, Entity B acquires the property as a creditable acquisition as it is for a creditable purpose, the supply is taxable to Entity B, Entity B provides consideration and is registered for GST.
Therefore, Entity B is entitled to claim input tax credits on the purchase of the property.
Furthermore, as Entity B under the contract did not action either option, option one prevails as per clause XXX of the contract and the GST is to be calculated using the ordinary method rather than the margin scheme.