Edited version of private advice

Authorisation Number: 1051970624628

Date of advice: 17 May 2022

Ruling

Subject: GST and real property

Question

Are you required to make an adjustment pursuant to Division 129 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the input tax credits that you have previously claimed on your acquisitions?

Answer

No.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

You are an entity and you carried on an enterprise of acquiring and developing land for sale for the specified period.

You are registered for the goods and services tax (GST) effective from the specified date.

You purchased the specified Property which comprised land and a house built in the last century. The sale to you was an input taxed supply of residential premises.

The Property was at all times zoned residential. The zoning hasn't changed at any time relevant to your interest being held then sold.

You always intended to develop the Property in stages, to create subdivided residential lots for sale as taxable supplies.

You engaged a project manager for lodging development plans for the Development Application, and various other consultants and experts, for reports required for the proposed development. The reports prepared by the consultants and experts were a necessary part of the Development Application (DA) and were requested by the relevant Council Authority.

You have claimed input tax credits for GST paid in your acquisitions when you lodged your business activity statements (BAS) for the relevant periods.

All the input tax credits that you have claimed in the relevant GST tax periods have been in respect of acquisitions of services provided by the consultants and experts for the proposed development of the Property.

The Council Authority subsequently rejected the DA. You dispute many of the factual statements the Council Authority relied upon to reject the DA.

Due to the DA being rejected you changed your intention for the Property and decided to sell the Property 'as is' rather than continue seeking to develop it. No physical works were carried out on the Property.

You sold the Property to a purchaser, without any subdivision occurring, for the specified Price.

The Property was in the same physical state as it was when you became the registered proprietor. The property was in the same state when you subsequently sold it to the purchaser.

The sale of the Property was an input taxed supply of residential premises.

You did not claim input tax credits in relation to fees incurred in respect of your sale, as they related to the input taxed sale of the Property.

You have not been involved in any other property development before or since the sale of the Property.

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 Subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(2)

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

A New Tax System (Goods and Services Tax) Act 1999 Division 129

A New Tax System (Goods and Services Tax) Act 1999 Section 129-40

Reasons for decision

GST input tax credits

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

•         you acquire anything solely or partly for a creditable purpose;

•         the supply of the thing to you is a taxable supply;

•         you provide, or are liable to provide, consideration for the supply; and

•         you are registered or required to be registered.

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, subsection 11-15(2) of the GST Act provides, that 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.

Goods and Services Tax Ruling GSTR 2006/4 (GSTR 2006/4) explains the Commissioner's view on the meaning of 'creditable purpose' and 'extent of creditable purpose' in Divisions 11, 15 and 129 of the GST Act.

GSTR 2006/4 provides guidance on how to determine the extent of your creditable purpose in making acquisitions to enable you to claim the correct amount of input tax credits.

When you make an acquisition, the extent of your creditable purpose is based on your planned use of the acquisition in your enterprise.

If your actual use of the thing acquired varies over time from your planned use, there is a change in the extent of your creditable purpose. If this occurs, you may need to make an adjustment to the amount of input tax credits you claimed. The amount of the adjustment depends on the change in the extent of your creditable purpose.

Division 129 - Changes in extent of creditable purpose

Under Division 129 of the GST Act, an entity needs to make an adjustment if there is a change in the extent of creditable purpose in relation to an acquisition made in carrying on its enterprise and for which it claims GST credits.

There can only be an adjustment under section 129-40 of the GST Act, where there is a change in the extent of creditable purpose of an acquisition.

There is a change in 'creditable purpose' of an acquisition if either:

•         there is a difference between how you planned to use the acquisition and how you actually use it; or

•         the way you used the acquisition has changed over time.

If a service is acquired and applied in carrying on your enterprise, and is not of a private or domestic nature, an adjustment can only arise under section 129-40 if there is a difference between the extent that the service relates to input taxed supplies at the time it is acquired, and the extent that it relates to input taxed supplies when it is actually applied in carrying on your enterprise (whether those supplies occur at the time of application or are merely proposed at that time).

In your situation, you incurred costs in relation to your enterprise of developing the property in stages, into subdivided lots for the purpose of sale. This was always your intention.

Your intention to continue with the development enterprise only changed as a result of the DA being rejected by the Council Authority. Instead, you decided to sell the Property as is, as an input taxed supply.

Your enterprise for which the costs were incurred was the enterprise of property development and sales of subdivided lots, which if proceeded to completion would have been taxable supplies.

If there has been no change in the extent to which the services acquired relate to an input taxed supply between the time they are acquired, and the time they are used in preparing for the development activities, the intended use of the services and their actual use are the same. Accordingly, there is no change in the extent of creditable purpose of the services acquired.

We consider that the extent of creditable purpose of your acquisitions did not change where those acquisitions were always only connected with the development of the property.

As the extent of creditable purpose of your acquisitions did not change after you decided not to proceed with the development of the property, you are not required to make any adjustments in relation to GST credits claimed for the expenses incurred in your development enterprise.