Edited version of private advice

Authorisation Number: 1051971838297

Date of advice: 12 April 2022

Ruling

Subject: GST - extent of creditable purpose

Question 1

Does the leasing of the property for $0 rent result in the taxpayer having an adjustment event under s129-40 of the A New Tax System (goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Is the taxpayer applying the property, that is rented for $0, for a creditable purpose per s129-50 of the GST Act?

Answer

Yes

The scheme commences on:

The date of issue of this private ruling.

Relevant facts and circumstances

You own a commercial property which has previously been leased to both related and unrelated parties, including the parties (or associates of them) below, on what was and is considered generally accepted arm's length commercial terms.

You have now ceased those prior arrangements and entered into two new leases. Both leases are for $0 rent.

Leases for both entities detailing permitted use, terms and conditions were attached to your application for private ruling.

Entity 1 is an Australian registered company and is registered with the Australian Charities and Not-for-profits Commission (ACNC), has various tax concession status and has DGR status.

Entity 2 is an Australian registered company. You understand this company operates as a non-profit and intends to apply for charitable status in due course.

Relevant legislative provisions

A New Tax System (goods and Services Tax) Act 1999 section 129-40

A New Tax System (goods and Services Tax) Act 1999 section 129-50

Reasons for decision

129-50 Creditable purpose

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

(2)           However, you do not apply the thing for a creditable purpose to the extent that:

(a)           The application relates to making supplies that would be input taxed; or

(b)           The application is of a private or domestic nature

Section 129-40 contains the method statement to work out whether you have an adjustment:

Step 1 - working out the actual application of the thing. In this case the relevant period to consider is the period 'starting when you acquired the thing and ending at the end of the adjustment period. During this period your supplies of leasing the commercial property will satisfy the definition of a taxable supply. Therefore, the proportion of supplies (expressed as a percentage) made during this period that are neither taxable supplies nor GST-free supplies (actual application) is 0%.

Step 2 - working out the former/intended use. As discussed above, it is considered you acquired the commercial property for a fully creditable purpose. Therefore, the proportion of all supplies that you intend will be supplies that are neither taxable supplies nor GST-free supplies (intended or former application) is 0%.

Step 3 - not applicable.

Step 4 - not applicable.

Step 5 - where the actual application of the thing is the same as its intended or former application, you will have neither an increasing adjustment nor decreasing adjustment.

Conclusion

There has been no change to the application of the premises despite entering into leases for no consideration. As such, there has been no change to the creditable purpose of the premises.