Edited version of private advice

Authorisation Number: 1052381492251

Date of advice: 11 April 2025

Ruling

Subject: GST - input tax credits

Question 1

Is xxxx (You) entitled to claim input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of your payment of the:

(a)           body corporate fees; and

(b)           professional indemnity insurance premium?

Answer 1

(a)           No, you are not entitled to claim any input tax credits in respect of your payment of the body corporate fees.

(b)           Yes, you are entitled to claim a input tax credit in respect of the professional indemnity insurance premium.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

xxxx (You) is registered for GST.

You operate a management and letting rights business. As part of your activities, you entered into a Caretaker Agreement with a body corporate under which you provide services to the Body Corporate. The key responsibilities of your business at the Complex specifies under the Caretaker Agreement include:

•                Managing common areas of the Complex.

•                Ongoing maintenance and administration

•                Caretaking and letting; you have the right to manage rental properties within the complex, including short-term rentals (e.g., holiday lets) or long-term leases. This includes overseeing cleaning, repairs and tenant management.

As part of the operation of your business, you purchased the residential unit on-site (Manager's Unit) which is located in the apartment complex which you manage (the Complex).

You do not own any other units in the Complex.

The Manager's Unit is a residential premises which consists or three bedrooms, two bathrooms, two living areas, a laundry. There is also a second structure which is a self-contained bedsitter which is accessed via the front foyer for the Complex. The self-contained bedsitter consists of a kitchenette/meals area, a bedroom and bathroom.

The Complex consists of over 100 residences including the Manager's Unit

You provide the Manager's Unit to your Director who is the manager of the Complex. The Director lives in the Manager's Unit with their family. You do not use the Manager's Unit for any other purpose.

There is a reception area and office area (collectively the Reception) that adjoin the Manager's Unit and is subject to an Occupation Authority. The Reception is located at the front entry to the Complex and is not part of the Manager's Unit. It comprises a fixed counter, cupboards, ceramic tiled floor and back office.

As the owner of the Manager's Unit, the Body Corporate issued you a tax invoice in respect of body corporate fees including a GST amount.

You have acquired professional indemnity insurance and are liable for payment of the premium.

You have building insurance; however, the Body Corporate is liable for these insurance costs and they are then included in the body corporate fee charged to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 11-10

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 40-35

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

A New Tax System (Goods and Services Tax) Act 1999 - section 40-70

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

Reasons for decision

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

Section 11-5 of the GST Act states:

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

(* denotes a defined term in section 195-1 of the GST Act.)

Section 11-15 of the GST Act states:

(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.

You are registered for GST and provide consideration for the supply of the body corporate services and professional indemnity insurance. These two supplies are taxable and include GST. Therefore, it must be determined whether they have been acquired solely or partly for a creditable purpose.

An acquisition is not made for a creditable purpose to the extent it relates to making supplies that would be input taxed.

Generally, where an entity sells or rents existing residential premises, the supply of such premises is input taxed. Further no input tax credit can be claimed for any acquisition which relates to an input taxed supply.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) considers the definition of residential premises and states:

Definition of residential premises

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

8. A supply of residential premises may consist of a single room or apartment, or a larger complex consisting of rooms or apartments.

Residential premises to be used predominantly for residential accommodation (regardless of the term of occupation) - physical characteristics

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

You acquired the residential unit on-site (i.e. the Manager's Unit). The Manager's Unit has the physical characteristics of residential premises and is provided by you to the Director who resides in the premises with their family.

You have acquired the body corporate services and professional indemnity insurance as part of the carrying on of your enterprise. As explained above, an acquisition is not made for a creditable purpose where it relates to making an input taxed supply.

Body corporate fees

The body corporate fees are payable by you as the owner of the Manager's Unit. These fees are related to the input taxed supply of the premises you make to the Director residing in the premises. Accordingly, 11-15(2)(a) of the GST Act applies and the acquisition is not made for a creditable purpose. On this basis, you are not entitled to claim any input tax credit on the body corporate fee.

Professional Indemnity Insurance

The professional indemnity insurance premium is payable by you and covers claims associated with your Professional Services, being the services that you provide. As the premium is not related to an input taxed supply it does not fall within 11-15(2)(a) of the GST Act. Accordingly, the acquisition is made for a creditable purpose. On this basis you are entitled to claim an input tax credit on the premium.