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Edited version of private advice
Authorisation Number: 1051845066201
Date of advice: 18 June 2021
Ruling
Subject: GST and input tax credits
Question
Will the entity be entitled to claim GST credits for the GST included in the construction costs pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
Relevant facts and circumstances
The entity has an Australian Business Number (ABN), and is not currently registered for the goods and services tax (GST).
The entity carries on an enterprise of leasing commercial and residential premises.
The entity is the registered proprietor of a property in Australia.
The property consists of land and an existing commercial building.
The entity has obtained the necessary plans and permits to demolish the existing building and to build a commercial building on the land.
The newly built commercial building will be leased out on commercial terms.
The entity has no intention to sell the property.
The entity will incur construction costs which include GST.
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 11-15
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
Reasons for decision
Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes.
Section 11-5 of the GST Act lists the requirements that must be satisfied for an entity to make a creditable acquisition. Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:
a) it acquires anything solely or partly for a creditable purpose;
b) the supply to it is a taxable supply;
c) it provides, or is liable to provide, consideration for the supply, and
d) it is registered or required to be registered for GST.
All the above requirements (a) to (d) under section 11-5 of the GST Act must be met for the acquisition to be a creditable acquisition.
In this case, the entity is not registered for GST. As the entity is not registered for GST, paragraph 11-5(d) of the GST Act will not be met.
Where the entity is not registered for GST when it makes the acquisitions to construct the commercial building, the requirement in paragraph 11-5(d) of the GST Act is not met.
Therefore, regardless of whether the other paragraphs (a) to (c) under section 11-5 of the GST Act may be satisfied, all the requirements of section 11-5 of the GST Act for the entity's acquisition to be a creditable acquisition will not be satisfied.
Where the entity is not registered for GST, it will not be making any creditable acquisitions.
Consequently, it will not be entitled to claim any input tax credits for GST included in the construction costs of the commercial building under section 11-20 of the GST Act.