Edited version of private advice

Authorisation Number: 1051788050683

Date of advice: 10 December 2020

Ruling

Subject: GST credits

Question

Are you entitled to claim a GST credit for the purchase of the vacant land at a specified location (the Vacant Land)?

Answer

No.

Relevant facts and circumstances

You carry on a property rental business and are registered for GST.

On a particular day in 20XX, you entered into a contract of sale for the purchase of Vacant Land from the Vendor. The contract price is a specified amount.

In the GST section of the contract of sale there is a tick in the box next to the statement that the margin scheme will be used to calculate GST.

The General Condition provides that if the particulars of the sale specify that the supply is made under the margin scheme, the parties agree that the margin scheme applies.

Furthermore, the Special Condition provides that the parties agree that the price payable under the contract is expressed on a GST inclusive basis and that the Vendor will apply the margin scheme and the Vendor will not issue a tax invoice.

The Vendor provided a GST Withholding Notice which provides that the Purchaser is required to make a payment of the amount under Section 14-250 of Schedule 1 of the Taxation Administration Act 1953 in relation to the supply of the named property. The Withholding amount is a particular amount. The Purchaser will be required to pay the withholding amount on or before the day of settlement.

The settlement of the sale was later in 20XX.

You received a notification that the withholding payment of was received in the ATO.

You advised that there was no variation to the contract of sale stating that the margin scheme will not be used. Further, the Vendor did not provide a revised notice stating a withholding amount other than amount specified.

The Vendor did not issue a tax invoice for the sale of the vacant land.

Your purpose in purchasing the Vacant Land was to build a house for subsequent sale.

You claimed GST of 10% of the contract price, in your latest activity statement.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 75-20.

Reasons for decision

Summary

You are not entitled to claim a GST credit for the purchase of the Vacant Land as you have not made a creditable acquisition. You purchased the Vacant Land as a taxable supply where the GST was calculated under the margin scheme.In accordance with section 75-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), your purchase is not a creditable acquisition.

Detailed reasoning

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

You make a creditable acquisition if all the requirements of section 11-5 of GST Act are met. You make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose

(b)  the supply of the thing to you is a taxable supply

(c)   you provide, or are liable to provide, consideration for the supply and

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

Section 75-20 of the GST Act provides that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme. This section has effect despite section 11-5 of the GST Act.

In your case, the GST payable on the supply of the Vacant Land to you was worked out under the margin scheme. Hence, your acquisition of the Vacant Land is not a creditable acquisition. Therefore, you are not entitled to claim a GST credit for the acquisition of the Vacant Land.

Correcting GST errors

You advised that you claimed a GST credit in your latest activity statement for the acquisition of the Vacant Land.

As outlined above, you are not entitled to claim a GST credit for the acquisition of the Vacant Land.

As you have made a GST mistake on an earlier activity statement, resulting in you claiming too much GST credits, you may be able to make a correction on a subsequent activity statement if you meet certain conditions.

For further information refer to Correcting GST errors available from our website.