Issue
Can a taxpayer claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the GST component of an expense paid with regard to a residential rental property?
Decision
Yes, a taxpayer can claim a deduction under section 8-1 of the ITAA 1997 for the GST component of an expense paid with regard to a residential rental property.
Facts
The taxpayer owns a residential rental property.
The taxpayer has paid GST on an expense incurred in earning assessable income from that residential rental property.
Reasons for Decision
Section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), provides that the supply of residential accommodation is an 'input taxed' supply. If a supply is 'input taxed', it is not a 'taxable supply' under section 9-5 of the GST Act. An acquisition that relates to the making of an 'input taxed' supply will not be made for a 'creditable purpose' (subsection 11-15(2) of the GST Act) and therefore there is no entitlement to an 'input tax credit' under section 11-20 of the GST Act.
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. However, section 27-5 of the ITAA 1997 provides that a deduction under that Act is not allowable for an amount relating to an entitlement to an 'input tax credit'.
The taxpayer has a residential rental property which is an 'input taxed supply' under the GST Act. An expense incurred by the taxpayer in relation to the residential rental property will not be for a 'creditable purpose' under the GST Act and consequently the taxpayer is not entitled to an 'input tax credit' attributable to the expense. As the taxpayer is not entitled to claim an 'input tax credit', a deduction for the GST component of the expense is allowable under section 8-1 of the ITAA 1997.