Edited version of private advice

Authorisation Number: 1051900923201

Date of advice: 23 September 2021

Ruling

Subject: Entitlement to input tax credits for expenses funded from insurance settlement amount

Question

Are you entitled to claim input tax credits on the expenses paid to undertake repairs to the townhouses and common areas that you manage from a settlement amount stated to be "GST-exclusive"?

Answer

Yes. You are entitled to input tax credits for any GST paid on expenses paid to undertake repairs to the townhouses and common areas you manage as an owner's corporation.

Relevant facts and circumstances

You are an owner's corporation for a townhouse complex.

You do not lease any of the premises in your own capacity or behalf of any of the owners.

There were significant and systematic defects in the townhouse complex which caused damage to the townhouses and/or common areas.

You identified the defects and damage and referred them to the builder of the townhouse complex.

A claim was made under the insurance policy for the contract works and the insurer agreed to pay the claim.

As the builder went into external administration, the insurance settlement amount was paid to you to undertake the rectification works.

The insurer advised that the settlement amount is exclusive of GST and will be paid in monthly instalments.

Our systems show that you become registered for GST on XXXXXXX.

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 11-5

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

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless specified otherwise.

Section 11-20 provides that an entity is entitled to an input tax credit for any creditable acquisitions that it makes. Section 11-5 explains when provides that an entity makes a creditable acquisition when

(a) the entity acquires anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to the entity is a *taxable supply; and

(c) the entity provides, or is liable to provide, *consideration for the supply; and

(d) the entity is *registered or *required to be registered for GST.

* denotes a term defined in the Dictionary, starting at section 195-1.

Section 11-15 provides that an entity acquires something for a creditable purpose if it acquired in carrying on its enterprise. However, the entity does not acquire something for a creditable purpose if the acquisition relates to making supplies that would be input taxed or is of a private or domestic nature.

Subsection 29-10(3) provides that an entity can only claim an input tax credit in an activity statement in the tax period that they hold a tax invoice (for purchases more than $82.50).

From the effective date of your GST registration, you will be entitled to claim input tax credits on the goods or services you acquired for the rectification works for the defects and the resultant damage to the townhouse complex. This is provided that these acquisitions are taxable supplies to you and you hold a valid tax invoice, generally this means that there is GST included in the price.

From the effective date of your GST registration, the rectification works or goods you acquired to make repairs will meet the requirements for a creditable acquisition under section 11-5 if they are taxable supplies to you. You make the acquisition of the rectification works or goods to as part of your enterprise of managing the townhouse complex and the expenses do not relate to making supplies that are input taxed or they are not of a private or domestic nature. Your entitlement to input tax credits for the expenses does not change because the expenses were funded through payments received under an insurance settlement that is stated to be "GST exclusive".