Issue
Is the entity, a sole trader, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for acquisitions made in the course of constructing its residential premises where the premises will be used partly for its residential accommodation and partly for business purposes?
Decision
No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act for acquisitions made in the course of constructing its residential premises where the premises will be used partly for its residential accommodation and partly for business purposes.
Facts
The entity is sole trader. The entity constructed residential premises. The supplies to the entity of goods and services for the construction of the residential premises were taxable supplies under section 9-5 of the GST Act. The entity will use the residential premises partly for its residential accommodation and partly for business purposes.
The part of the house that will be used for business purposes is not commercial premises and can still be used for residential purposes if the entity chooses.
The entity is registered for goods and services tax (GST) and provided consideration for the acquisitions.
Reasons for Decision
Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes.
Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if: • it acquires anything solely or partly for a creditable purpose; • the supply of the thing to it is a taxable supply; • it provides, or is liable to provide, consideration for the supply; and • the entity is registered or required to be registered for GST.
Section 11-15 of the GST Act provides that an entity acquires something for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise. However, under paragraph 11-15(2)(b) of the GST Act an entity does not acquire something for a creditable purpose to the extent that it is of a private or domestic nature.
The entity is constructing residential premises that will be used partly for its residential accommodation and partly for business purposes. The part of the house that is used for the entity's residential accommodation is clearly of a private and domestic nature, and therefore, acquisitions made to construct this part of the house are not made for a creditable purpose.
However, it must be determined whether the acquisitions made to construct the part of the house that is for business purposes are also of a private and domestic nature.
A home, by its very character, is something that is of a private or domestic nature. The fact that part of the home is used for business purposes does not change the nature of the building. In this case, although the home includes rooms that will be used for business purposes, this does not give those parts of the building a character different from the rest of the house. It is still a home and private or domestic in nature.
When an entity constructs a building, each of the acquisitions made in the construction will take the character of the finished building. This will include the land on which the building is constructed. Therefore, the acquisitions made to construct the residential premises are of a private and domestic nature and are not for a creditable purpose within the meaning of section 11-15 of the GST Act. As such, the acquisitions are not creditable acquisitions under section 11-5 of the GST Act.
The entity is not entitled to input tax credits under section 11-20 of the GST Act when it constructs residential premises that will be used partly for its residential accommodation and partly for business purposes. [Note 1: Although the entity is not entitled to input tax credits in relation to the acquisition of the land and the construction costs, the entity is entitled to input tax credits in relation to the acquisitions associated with maintaining a home office where the requirements of section 11-5 of the GST Act are met. This applies to furniture, electricity, insurance and costs associated with a home office (see Taxation Ruling TR 93/30 for guidance on when acquisitions to run and operate a home office are of a private and domestic nature or for business purposes). Note 2: Where part of the building has a character that is different from that of a residence, that is, a part of the building has the character of a home and the other part has a commercial character, an entity is entitled to input tax credits for the construction of the commercial part, where the requirements in section 11-5 of the GST Act are met. The commercial part of the building will have features, fixtures or fittings that clearly distinguish it from the residential part. Examples of this are a residence with an attached shop front and a house that has been partly converted for use as a doctor's surgery (see paragraph 22 of Goods and Services Tax GSTR 2000/20).]