Edited version of private advice

Authorisation Number: 1051941727125

Date of advice: 20 January 2022

Ruling

Subject: Input taxed supplies and adjustments under Division 129

Question 1

Was the sale of the residential properties taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of the two properties were not taxable supplies under section 9-5 of the GS Act.

Question 2

Is there a requirement to make adjustments under Division 129 of the GST Act in relation to the previously claimed input tax credits?

Answer

No.

Relevant facts and circumstances

The entity was formed xxxx with the sole purpose of running a property development enterprise by subdividing land.

The entity holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).

On the xxxx the entity purchased two adjoining residential properties with the intension of subdividing both properties into smaller lots and selling the lots as residential land.

The properties were purchased as input taxed supplies and no input tax credits were claimed in relation to these purchases.

After acquiring the properties both remained vacant.

The entity incurred expenses relating to the preparation of the subdivision and claimed input tax credits relating to these acquisitions.

The entity changed its plan to subdivided and develop the two properties on the basis that the development was no longer viable.

Contracts of sale were entered into to sell both properties.

The properties were sold as residential premises as the properties had not changed from the date of the entities' original purchase and as residential premises remained.

One property was rented to the new purchaser prior to settlement with no GST collected on the rent.

No input tax credits have been claimed by the entity in relation to the input taxed supplies made by the entity.

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 9-40

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 - Division 129

A New Tax System (Goods and Services Tax) Act 1999 - section 40-65

Reasons for decision

Section 9-5 of the GST Act provides you make a taxable supply if:

1.    you make the supply for consideration; and

2.    the supply is made in the course or furtherance on an enterprise that you carry on; and

3.    the supply is connected with the indirect tax zone; and

4.    you are registered, or required to be registered, for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Section 40-65 of the GST Act the sale of residential premises is input taxed to the extent that the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation). However, the sale is not input taxed to the extent that the residential premises are:

•         commercial residential premises; or

•         new residential premises other than those used for residential accommodation (regardless of term of occupation) before 2 December 1988.

Section 195-1 of the GST Act explains that residential premises mean land or a building that:

(a)  is occupied as a residence or residential accommodation; or

(b)  is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

(regardless of the term of the occupation or intended occupation) and includes a floating home.

The entity purchased the two residential properties in XXXX with the intension of subdividing the properties into smaller residential lots and on selling these lots.

The two properties met the definition of residential premises under section 40-65 of the GST Act when purchased and the properties remained unchanged during the time the entity owned the two properties.

The entity sold the two properties as residential premises in 2021, due to a change in their plans. At the time of sale in XXXX both properties still met the definition of residential premises under section 40-65 of the GST Act and as a result were input taxed supplies.

As a result, no GST liability arises from the sale of these two properties.

Claimed input tax credits

Section 11-5 of the GST Act provides that 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.

Section 11-15 of the GST Act provides that:

(1). You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your enterprise.

(2). 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.

Division 129 of the GST Act provides that adjustments can arise where there is a change in the extent of creditable purpose caused by later events. In this case the entity states that it has only claimed input tax credits in relation to the development costs pertaining to the subdivision of the two properties into smaller lots. No claims have been made by the entity in relation to the input taxed supplies of the two residential properties.

The decision to sell the residential properties was brought about due to the proposed development of the properties becoming unviable which would have resulted in taxable supplies had it been completed.

As a result, the extent of creditable purpose in relation to the acquisitions claimed on the entities' activity statements which only related to the costs incurred in the development enterprise have not changed.

Therefore, there is no requirement under Division 129 of the GST Act to make any adjustments.