Edited version of private advice

Authorisation Number: 1052227846457

Date of advice: 6 March 2024

Ruling

Subject: GST - creditable acquisition of leasing a property

Question

Are the partnership making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it leasesProperty A (the property) from the SMSF?

Answer

Yes, the partnership is making a creditable acquisition to the extent that supply of the property is a taxable supply made by the SMSF.

This ruling applies for the following periods:

Year ending on or after 23 June 20YY

Relevant facts and circumstances

The partnership has an Australian Business Number (ABN) and is registered for GST.

The partnership consists of Person A and Person B who are carrying on a primary production business at Property A (the property).

The property is a XXXX farm and is approximately (number) hectares including an existing residential premises (the farmhouse), which is less than (number) hectares, a detached (number) bay Colourbond lock-up garage (number m x number m), a detached (number) bay American style garage (number m x number m) and a detached machinery shed (number m x number m) and included (number) x (number) gallon poly rainwater tanks (structural improvements).

The partnership leases the property including an area allocated to the farmhouse and structural improvements from SMSF.

The SMSF has entered into a Limited Recourse Borrowing Arrangement to acquire the property for $amount.

The SMSF was appointed as title holder of the property through the Custody Trust Deed created on (date, month, year).

The lease agreement is at arm's length terms commencing on (date, month, year) at market value of the land of $amount per annum (p/a) plus GST with market review dates on (date, month, year) and (date, month, year).

The rental calculation is taken from pages (number) & (number) of the valuation report which includes both rural and residential components of the property adopt a value of $amount per annum for the rural (land only) and $amount per annum for the residential premises and structural improvements.

As per the 'proposed lease agreement' on page (number) of the valuation report, the partnership must engage in all operations necessary to prepare an area of approximately (number) hectares for cultivation purposes during the first term of the Lease.

The SMSF issued the partnership a tax invoice dated (date, month, year) totalling $amount which included $amount (+ GST) per month for 'rural rent' and $amount (no GST) per month for the farmhouse.

The SMSF has an ABN and is registered for GST.

The farmhouse will be occupied by Person B and Person C who are not leasing the farmhouse; however, the use of the farmhouse is in recognition of their duties performed as the XX occupation.

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 9-20

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

Under section 11-20 of the GST Act you are entitled to input tax credits for any creditable acquisition that you make.

Creditable acquisitions

Under section 11-5 of the GST Act 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 for GST.

In this case, subsections 11-5(a), 11-5(c) and 11-5(d) of the GST Act are satisfied as you are leasing the property for the purposes of carrying on your primary production business, you have provided consideration for the supply of the leased property, and you are registered for GST respectively.

Therefore, what needs to be determined, is whether the supply leasing the property from the SMSF to the partnership was a taxable supply under subsection 11-5(b).

Taxable supply

Under section 9-5 of the GST Act, a supply will be taxable if the following conditions are met:

a)            the supply is for consideration; and

b)            the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

c)            the supply is connected with the indirect tax zone; and

d)            the supplier is registered for required to be registered

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

In this case, all four requirements of subsections 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act are satisfied as the supply of the property was for consideration; was made in the course or furtherance of an enterprise that the SMSF carries on and the property is located in Australia, so the supply is connected with the indirect tax zone and the SMSF is registered for GST.

There is no legislative provision in the GST Act that allows the supply of the property to be GST-free in this case, however, consideration needs to be given to whether the supply is input taxed.

Based on the information provided, the supply of the property from the SMSF to the partnership was a mixed supply with the rural rent being subject to GST while the farmhouse and structural improvements have been treated as input taxed.

Where an entity is making a mixed supply that is a combination of separately identifiable taxable and non-taxable parts, the GST liability is only calculated on the taxable portion of the supply.

Accordingly, the partnerships acquisition is a creditable acquisition under section 11-5 of the GST to the extent that the supply of the property is a taxable supply made by the SMSF. As such, the partnership is entitled to claim input tax credits for the taxable component of the supply as set out in the tax invoice issued by the SMSF.