Edited version of private advice

Authorisation Number: 1051840438774

Date of advice: 9 June 2021

Ruling

Subject: GST and claiming input tax credits

Question 1

Is Entity A (the Trust) entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the acquisitions it makes in respect to the subdivision and construction costs?

Answer

Yes, the Trust is entitled to an input tax credit under section 11-20 of GST Act for the acquisitions it makes in respect to the subdivision and construction costs.

Question 2

Is the Trust entitled to an input tax credit under section 11-20 of the GST Act for the acquisition of:

(a) real estate agent services;

(b) legal services from Solicitor 1;

(c) legal services from Solicitor 2?

Answer

No, the Trust is not entitled to an input tax credit under section 11-20 of the GST Act on the acquisition of:

(a) real estate agent service; and

(b) legal services from Solicitor 1.

However, the Trust is entitled to an input tax credit under section 11-20 of the GST Act on the acquisition of:

(c) the legal services from Solicitor 2.

Question 3

Is the Trust liable for GST under section 9-40 of the GST Act in respect of the payment received (Net Purchase Price) under the Call Option Deed (Deed)?

Answer

Yes, the Trust is liable for GST under section 9-40 of the GST Act in respect of the Net Purchase Price received under the Deed.

Relevant facts and circumstances

The Trust carries on an enterprise and is registered for GST.

Mr & Mrs X (the Seller) and the Trust (as Buyer) entered into a Call Option Deed (the Deed) in respect of a property (the Property).

Under the terms of the Deed the Seller granted the Buyer and the Buyer's Nominee a Call Option to purchase the Property for the Purchaser Price and on the provisions of the 'Contract' where the term 'Contract' means a contract for sale of the Property, to be entered into by the Seller and the Buyer or the Buyer's nominee upon exercise of the Call Option.

The Call Option Fee payable by the Buyer under the Deed was an amount of $X and was payable on the Deed Date.

The Deed provides that the Seller authorisers the Trust to:

(a) erect signs on the Property as are required for the purposes of a Development Application;

(b) have the Property inspected to obtain any certificate or report (including, without limitation, a survey certificate or report) reasonably required by the Buyer;

(c) carry out soil tests to determine the suitability of the sub strata or soil of the Property for building construction purposes; and

(d) carry out the Development upon the Buyer receiving an effective Development Approval which is acceptable to the Buyer in its sole discretion, and to enable the Buyer to exercise its Rights under the particular clause, the Seller grants to the Buyer and its Authorised Officer, a limited licence to enter the Property, at reasonable times upon giving reasonable Notice to the Seller.

The Deed provides that the Buyer must pay all costs, charges and fees payable in respect of the preparation and lodgement of a Development Application and must indemnify and keep the Seller indemnified from and against all Claims incurred or sustained by the Seller directly or indirectly in consequence of the lodgement of a Development Application.

The term Development is defined in the Deed as follows:

Development means any type of development the Buyer Intends to carry out including but not limited to:

(a) carrying out building works on the Property;

(b) carrying out plumbing or drainage work on the Property;

(c) carrying out operational work on the Property;

(d) reconfiguring the Property;

(e) detailed survey planning and pegging;

(f) removal of vegetation;

(g) removal and/or relocation of internal fences;

(h) minor earthworks and retaining;

(i) installation of new driveway/s and fence/s; and

(j) making a material change of use of the Property.

Once the Deed was signed, the Buyer commenced the subdivision and development of the Property and in doing so acquired services in respect of the subdivision and development. For the purposes of this private ruling these supplies acquired by the Buyer included GST.

The Property once subdivided consisted of two lots, these are known (and referred to in the Deed) as:

•         Proposed Lot 1, (Vacant Subdivided Lot)

•         Proposed Lot 2, (Existing House Subdivided Lot)

The Buyer and a real estate agent entered into and signed agreements such that an interested third-party buyer (Buyers Nominee) could be found to acquire the Property.

The Buyer has provided documents showing services and payments made to legal service providers being:

•         Solicitor 1

•         Solicitor 2

In respect of Solicitor 1 the invoice provided is issued the Seller for the schedule of attached services that have been set out in the invoice.

In respect of Solicitor 2 invoices have been provided these show that each invoice was issued to the Buyer (i.e. the Trust) for payment of the Solicitor 2 services.

After the subdivision and renovation of the existing Property were completed, the Buyer exercised the Call Option and nominated the Buyers Nominee.

The Seller subsequently entered two Contracts of sale (Nominee Contracts) for the supply of the:

•         Existing House Subdivided Lot to Entity Y (Buyers Nominees 1) under Nominee Contract 1.

•         Vacant Subdivided Lot to Entity Z (Buyers Nominee 2) under the Nominee Contract 2.

According to the first page of each Nominee Contract the Seller has listed their:

•         'Seller's agent' as the real estate agent; and

•         'Seller's Solicitor' as Solicitor 1.

The Deed provides that upon the Seller entering into a Nominee Contract with the Buyer's Nominee the Buyer will be allocated the Net Purchase Price using a method set out by the Deed.

Pursuant to the Deed, the final Net Purchase Price was paid to the Buyer.

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 11-20