Edited version of private advice

Authorisation Number: 1051619685167

Date of advice: 18 December 2019

Ruling

Subject: Goods and services tax and property

Question

To what extent are you entitled to GST credits on the construction of the specified property pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

You are entitled to 100% of GST credits on the construction of the specified property. You are not entitled to any GST credits on the construction of the specified property.

You are required to apportion the costs of the construction of the shared facilities according to any reasonable method.

This ruling applies for the following period: 1 July 20XX to 30 June 20XX

The scheme commences on: 1 July 20XX

Relevant facts and circumstances

You (specified entity) are building a complex known as the specified property.

The specified property will comprise of two distinct types of facilities along with associated infrastructure:

·   Occupants pay regular fees to live in the specified property and they normally pay using government assistance and from their own resources;

·   specified property which provide apartment style living. Residents occupy the ILUs using a typical loan/licence agreement commonly used in retirement villages. This is the way in which residents of ILUs acquire their rights to residential accommodation. The ILU residents have underground car parking with allocated spots.

You have provided the following in respect to your ruling application received on specified date:

·   your explanation of three different methods of apportionment of costs in relation to specified property;

·   your projected profit and loss for the year ending specified date in respect to your specified property operations;

·   your building location site plan;

·   your computations of creditable purpose based on site area;

·   your specified property resident agreement; and

·   your ILU resident agreement.

The ILUs are built for residential accommodation with physical characteristics including bedroom(s), bathroom(s), toilet(s) and kitchen.

You have advised that, pursuant to section 38-25, your supplies of services and accommodation in relation to the specified property are GST-free.

You are leasing the ILU's to the residents and have stated that your supplies of accommodation in relation to the ILUs are input taxed.

You have provided 3 methods of apportioning all your construction costs.

Your first method of cost apportionment is based on paragraph 15 of Goods and Service Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan lease' arrangement (GSTR 2011/1). Your creditable purpose under this method is specified number.

Your second method of cost apportionment is based on site area usage. Your creditable purpose under this method is specified number.

Your third method of apportionment is based on projected revenue from your operations. Your creditable purpose under this method is specified number.

The shared facilities include:

·   only the outdoor car parks;

·   common gardens apart from reasonable curtilage to specified property;

·   the main driveway;

·   service driveways;

·   footpaths.

Relevant legislative provisions

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

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 11-15(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 11-15(2)(b)

A New Tax System (Goods and Services Tax) Act 1999 11-25

A New Tax System (Goods and Services Tax) Act 1999 11-30(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 38-25

A New Tax System (Goods and Services Tax) Act 1999 38-25(1)

A New Tax System (Goods and Services Tax) Act 1999 38-25(2)

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

Reasons for decision

In this reasoning:

·   unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·   all terms marked by an asterisk are defined terms in the GST Act

·   all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

Section 11-25 states:

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.

Section 11-5 states:

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.

Paragraph 11-30(1)(a) states:

An acquisition that you make is partly creditable if it is a *creditable acquisition to which one or both of the following apply:

(a) you make the acquisition only partly for a *creditable purpose;

Subsection 11-15(1) 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) states:

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.

Specified property

You did not develop the specified property to make input taxed, private or domestic supplies. You stated that you make GST free supplies to residents of this complex pursuant to subsection 38-25(1) and subsection 38-25(2). We have accepted this statement and therefore it follows that, all acquisitions in respect to the specified property are fully for a creditable purpose. You are entitled to 100% of GST credits on the construction of the specified property.

Where you make supplies from the complex which are not GST free and are input taxed then you will not be entitled to GST credits on your construction or operating costs relating to those supplies.

ILUs

Section 40-35 provides that a supply of premises that is by way of lease, hire or licence is input taxed if the supply is of residential premises.

You stated you developed the specified property to make input taxed supplies. We have accepted your statement. Applying subsection 11-15(2)(a), your development of the ILUs is not for a creditable purpose because they were built for the purpose of providing input taxed residential accommodation. As you have not made any creditable acquisitions, you are not entitled to any GST credits on the construction of the specified property.

Where you make supplies from the complex which are GST free and not input taxed then you will be entitled to GST credits on your construction or operating costs relating to those supplies.

Shared facilities

The shared facilities listed in the facts relate partly to making input taxed supplies. So, your acquisitions in respect to the shared facilities are only partly for a creditable purpose. Therefore, your GST credits are reduced.

Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose (GSTR 2006/4) provides guidance on the calculation of the extent of creditable purpose.

Paragraph 30 of GSTR 2006/4 states:

If your planned extent of creditable purpose is less than 100% (but greater than zero), then the acquisition or importation is partly creditable and you need to apportion the total purpose between that which, on your estimate, is creditable and that which is not (see paragraphs 39 to 52 of this Ruling).

Paragraph 34 of GSTR 2006/4 states:

Following the principles set out by the High Court, the apportionment method you choose needs to:

·         be fair and reasonable;

·         reflect the planned use of that acquisition (or in the case of an adjustment, the actual use); and

·         be appropriately documented in your individual circumstances (see paragraphs 98 to 100 of this Ruling).

You have provided three different calculations in regards to apportionment methodologies. You have applied these to the whole complex however as set out above apportionment is only available for the shared facilities. You will need to choose a methodology that meets the criteria set out above.