Edited version of private advice

Authorisation Number: 1052069195735

Date of advice: 20 December 2022

Ruling

Subject: GST - entitlement to input tax credits

Question

Are you entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 on the purchase of the Property?

Answer

Yes.

Relevant facts and circumstances

You are carrying on two enterprises being financial services and leasing.

You are registered for GST.

You own several commercial properties and are conducting a leasing enterprise.

You entered into a Contract for the sale of land (Sale Contract) with the Vendor to purchase the Property.

The Sale Contract lists the price as an amount plus GST.

In the GST section of the Sale Contract, there is a tick in the box next to the statement that GST (if any) must be paid in addition to the price if the box is checked.

The Sale Contract states that the purchaser must pay to the vendor any GST payable by the vendor in respect of taxable supply made under the contract in addition to the price if the particulars of sale specify that GST (if any) must be paid in addition to the price.

The purchase is being funded from existing cash reserves and there will not be a need to borrow to fund the purchase.

The Vendor is currently registered for GST. It is your understanding that they are required to be registered and will remain registered at settlement.

The sale of the Property to you is a taxable supply and the margin scheme is not used to calculate the GST payable on the sale.

Settlement has been agreed as a number of months from now and you have requested the Vendor to provide a tax invoice at settlement.

The Property contains a commercial building/shopfront and is located within the central business district. There is no existing lease on the Property and is currently vacant.

You are acquiring the Property as part of your leasing enterprise. The Property will be leased to an unrelated entity at commercial terms. You will engage an agent to manage the Property.

The Property will be used solely to make taxable supplies, in the form of commercial rent.

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.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Note: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999.

Section 11-20 provides that you are entitled to an input tax credit for any creditable acquisitions that you make.

Section 11-5 provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose

(b)  the supply of the thing to you is a taxable supply

(c)   you provide, or are liable to provide, consideration for the supply, and

(d)  you are registered or required to be registered for GST.

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a 'creditable purpose' to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.

Application of the law to your case

In this case you are acquiring the Property as part of your leasing enterprise. Your intention is to lease the Property to an unrelated entity at commercial terms. The supply of the Property by way of lease is not an input taxed supply. Furthermore, the acquisition of the Property is not considered to be private or domestic in nature. As such we consider the acquisition of the Property is for a 'creditable purpose' thus satisfying paragraph 11-5(a).

The Sale Contract states the price as an amount plus GST. The Sale Contract provides GST must be paid in addition to the price. The sale of the Property to you is a taxable supply and the margin scheme is not used to calculate the GST payable on the sale. Hence, the requirements of paragraphs 11-5(b) and 11-5(c) are satisfied.

Furthermore, the requirement of paragraph 11-5(d) is satisfied as you are registered for GST.

Given the above, all the requirements of section 11-5 are satisfied. Therefore, you are making a creditable acquisition. Accordingly, you are entitled to the input tax credit for the purchase of the Property pursuant to section 11-20.