Edited version of your private ruling

Authorisation Number: 1012550202736

Ruling

Subject: GST registration and input tax credits

Question 1

Are you entitled to register for Goods and Services Tax (GST)?

Answer

Yes

Question 2

If yes, are you entitled to input tax credits for your construction of the residential premises?

Answer

Yes

Relevant facts and circumstances

You are not registered for GST.

You are planning to build a residential unit in Australia.

The unit will be built together with two others on one property, but you will have a separate building contract for the unit.

You own the one third share of the land on which the unit will be built and the completed unit will be transferred under an individual title in your name.

Progress payments to the builder will be separated for each of the three units built on the property and hence it will be easy to identify the costs for building your unit.

Your intention for building the unit is currently for sale once the building is complete. However, if you do not obtain the desired sale price at this time you intend to lease the property.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 23-10

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

A New Tax System (Goods and Services Tax) Act 1999 Division 129

Reasons for decision

1. Are you entitled to register for Goods and Services Tax (GST)?

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you are required to register for the Goods and Services Tax (GST) if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. In most cases, you meet the registration turnover threshold if the GST exclusive value of your taxable and GST-free supplies is $75,000 or above.

However, section 23-10 of the GST Act states that you may register for GST if you are carrying on, or intend to carry on, an enterprise. Therefore, your entitlement to register for GST will depend on whether you are 'carrying on an enterprise'.

Paragraph 4 of the Goods and Services Tax Determination 2000/9 Goods and services tax: if you let out a residence do you need to get an ABN of PAYG purposes or register for GST? explains that the meaning of enterprise is relevant for supplies of residential premises. If you build and sell or lease residential premises, the relevant parts of the enterprise definition (section 9-20 of the GST Act) are:

an activity, or series of activities done:

§ in the form of a business; or

§ in the form of an adventure or concern in the nature of trade; or

§ on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property;

In your case, your building and selling of a residential unit will be an activity in the form of an adventure or concern in the nature of trade. If you do lease the property, in the event that your desired sale price is not obtainable at the time of sale, your leasing of the property will be an activity in the nature of a lease, licence or other grant of an interest in property, if it is done on a regular and continuous basis. In both cases, the activities will meet the definition of enterprise.

Therefore, you will be carrying on an enterprise and will be entitled to register for GST.

2. If yes, are you entitled to input tax credits for your construction of the residential premises?

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

Under section 11-5 of the GST Act:

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.

(* denotes a defined term in the GST Act.)

Section 11-15 of the GST Act provides that:

1. You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

2. However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

(* denotes a defined term in the GST Act.)

Section 40-65 of the GST Act states that:

1. A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominately for residential accommodation (regardless of the term of occupation).

2. However, the sale is not input taxed to the extent that the *residential premises are:

(a) *commercial residential premises; or

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

(* denotes a defined term in the GST Act.)

Under Section 40-75 of the GST Act:

(1) *Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease; or

(b) have been created through *substantial renovations of a building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

(* denotes a defined term in the GST Act.)

Upon completion, the residential premises will not previously have been sold. Therefore your supply of the residential premises will be a supply of new residential premises, which will not be input taxed.

Your acquisition of the associated construction services will be for consideration in the course of carrying on your enterprise. Assuming that you do register for GST and the supply of the services to you is a taxable supply, you will be entitled to the associated input tax credits.

Section 40-35 of the GST Act states:

(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:

(a) The supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or

(b) The supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

(* denotes a defined term in the GST Act.)

Therefore, if you decide to lease the unit instead of selling it, the costs of construction of your new residential premises will no longer be for a creditable purpose, as they will relate to making an input taxed supply.

The leasing of your unit will mean that there will be a difference between the actual and the planned application of the acquisitions. In that case, you may be required to make adjustments under Division 129 of the GST Act.