Q: Leia Caldwell, a property developer with GST.
In 2015/16, Leia intended to sell the 10 townhouses as new residential premises with each sale considered a taxable supply for GST purposes; Leia made creditable acquisitions $3.3m and claimed $300,000 of input tax credits for materials used in the construction of the townhouses.
In 2016/17, Leia sold seven of the townhouses and lease three townhouses to tenants in the long term as she benefited from the regular cash flow for future property developments.
Assuming Leia remits her Business Activity Statement (BAS) on a quarterly basis, advise Leia as to whether she is still entitled to all the $300,000 in input tax credits that she claimed; and the administrative mechanism for any adjustments to the input tax credits.
A: An input tax credit is a credit on an entity’s business inputs.
According to GST Act s 9-5,11-15, no GST is payable on a supply that is input taxed, and the entity cannot claim input tax credits for the GST payable on the inputs that relate to that supply.
According to GST Act s 40-35, the lease of private residential premises is input taxed if the premises are to be used predominately for residential purposes; no GST is payable on the supply and no input tax credit can be claimed on inputs to make the supply.
Based on the change of intention, three townhouses from selling to renting them, Leia is now making input taxed supplies on these three residential premises. She needs to correct the amount of input tax credit via her BAS.
According to GST Act Div 129, adjustments to previously declared input tax credits are required where input tax credits claimed are incorrect.
The amount of the increasing adjustment that Leia must remit is calculated as follows:
Increasing adjustment= full input tax credit (intended use- actual application)
= $300,000 *(100%- 70%)
The timing of the adjustment to the BAS is set out in GST Act s 129-20 and explained by the Commissioner in GST Ruling GSTR 2009/4. Because the creditable acquisition amount is greater than $500,000, the increasing adjustment is made over 10 adjustment periods commencing for the BAS relating to the period ended 30 June 2017.