Edited version of your private ruling

Authorisation Number: 1012441543053

Ruling

Subject: GST and property development by super fund

Question

Can you claim full input tax credits (credits) on the progress payments made to the builder and other expenses incurred on the construction and sale of the new houses?

Decision

Yes, you can claim full input tax credits on the progress payments made to the builder and other expenses incurred on the construction and sale of the new houses.

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 are a self managed super fund. You are registered for GST under the quarterly lodgment cycle.

· Your trustee lodges quarterly business activity statements (BAS) on your behalf. At the end of the financial year, your accountant undertakes a reconciliation of your GST liability and entitlement for credits with the BAS lodged for the financial year. If there are discrepancies, the accountant lodges amended BAS for the relevant tax periods.

· A few years ago, you bought an old house. It was demolished and a number of new houses were built on the land. You paid progress payments to a builder and selling expenses to a real estate agent.

· The new houses were sold immediately after construction and were never leased.

· During a phone conversation between your accountant and an officer of this office, the following information was collected:

§ you make financial supplies;

§ your accountant advised that you can claim reduced input tax credits on your financial supplies;

§ you misunderstood this and thought you could claim only part of the input tax credits on progress payments and development expenses relating to your property development enterprise.

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 - section 11-25

A New Tax System (Goods and Services Tax) Act 1999 - section 9-5

A New Tax System (Goods and Services Tax) Act 1999 - section 40-65

A New Tax System (Goods and Services Tax) Act 1999 - section 75-5

A New Tax System (Goods and Services Tax) Act 1999 - section 75-10

A New Tax System (Goods and Services Tax) Act 1999 - section 184-1

Reasons for the decision

Under paragraph 184-1(1)(h) of the GST Act, a superannuation fund is an entity. Therefore, provisions of the GST Act apply to a superannuation fund as to any other entity.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

GST liability

You supplied the new houses to third party buyers for consideration. You carried out an enterprise of property development. You supplied the new houses in the course or furtherance of this enterprise. The supply of these houses was connected with Australia as the new houses are located in Australia. You were registered for GST. Therefore, in selling the new houses, you satisfied paragraphs 9-5(a) - (d) of the GST Act.

The sale of new houses is not a GST-free supply under any provision of the GST Act.

Subsection 40-65(1) 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.

Paragraph 40-65(2)(b) of the GST Act provides that the sale is not input taxed to the extent that the residential premises are new residential premises.

Subsection 40-75(2) of the GST Act provides that residential premises are not new residential premises if, for the period of at least five years since the premises were last built, they have only been used for making supplies that are input taxed by way of lease, hire or licence.

In this case the new houses were sold immediately after construction and were never leased, hired or licensed.

Therefore, your sale of new houses was not an input taxed supply.

Accordingly, under section 9-5 of the GST Act, your sale of new houses was a taxable supply.

Input tax credits

Section 11-5 of the GST Act refers to what is a creditable acquisition and 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.

In the process of building and selling the new houses, you made a number of acquisitions such as building services provided by the builder, for which you made progress payments. In addition, you acquired services from a real estate agent for selling the new houses. The acquisition of these services was for a creditable purpose, as they were connected with making of taxable supplies of new houses.

The supplies of those services by the builder and the real estate agent were taxable supplies made to you. You provided consideration for these supplies and were registered for GST. Therefore, under section 11-5 of the GST Act, you made a creditable acquisition of these services.

Section 11-25 of the GST Act provides that 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.

In this case the services acquired by you were fully creditable acquisitions. Therefore, you are entitled to claim the total GST included in the services acquired.