GST and input tax credits for the purchase of property leased back to the builder as a display home

Is the entity, a property investor, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it purchases a new residential premises from a builder and then leases the premises back to the builder for use as a display home?

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it purchases a new residential premises from a builder and then leases the premises back to the builder for use as a display home.

The entity is property investor that is registered for goods and services tax (GST).

The entity purchases a new residential premises from a builder and then leases the premises back to the builder. The builder subsequently uses the residential premises as a display home. The lease of the premises to the builder is an input taxed supply under section 40-35 of the GST Act (see ATO ID 2001/469).

The residential premises have all the physical characteristics that enable it to be used for residential accommodation. The sale of the residential premises by the builder to the entity is a taxable supply.

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 where: • the entity acquires anything solely or partly for a creditable purpose; • the supply of the thing to the entity is a taxable supply; • the entity provides or is liable to provide consideration for the supply; and • the entity is registered or required to be registered for GST.

The supply of the residential premises by the builder to the entity is a taxable supply. The entity is registered for GST and has provided consideration for the premises. Therefore, it needs to be determined whether the acquisition of the premises by the entity is for a creditable purpose.

Section 11-15 of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise.

However, an entity does not acquire the thing for a creditable purpose to the extent that: • the acquisition relates to making supplies that would be input taxed; or • the acquisition is of a private or domestic nature.

The entity is making an input taxed supply, under section 40-35 of the GST Act, when it leases the premises to the builder (see ATO ID 2001/469 for further explanation). Therefore, the acquisition of the new residential premises relates to making a supply that is input taxed. As such, the acquisition of the premises is not for a creditable purpose under section 11-15 of the GST Act. This, in turn, means the entity is not making a creditable acquisition under section 11-5 of the GST Act.

Accordingly, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it purchases a new residential premises from a builder and then leases the premises back to the builder for use as a display home.