In FKYL and Commissioner of Taxation [2016] AATA 810 the Tribunal found that the Applicant was liable for GST in respect of the sale of four residential premises as they were “new residential premises” within the meaning of s 40-75 of the GST Act. The Tribunal also found that the Applicant was not entitled to use the margin scheme and that the Applicant was only entitled to a proportion of input tax credits for construction costs because the premises were rented out before they were sold.

New residential premises

The Applicant constructed the premises, some of which were sold more than 5 years after construction was completed. The Applicant contended that the premises were no longer “new residential premises” because they were only used for making input taxed supplies under s 40-35(1)(a) – i.e. they were leased for residential purposes. The Applicant faced a number of difficulties in substantiating its contention, including:

• Some of the premises were sold less than five years after construction was completed (but more than five years after acquisition). The Tribunal found that the time period starts once a person has a right to occupy the premises – which is not necessarily the date of completion of the building and it cannot be during the period when construction continues to take place.
• Some of the premises were not rented until some time after completion. Also, due to difficulties with tenants the premises were vacant for substantial periods of time. In each case the total amount of time of rental was less than 5 years.
• The Applicant required the tenants to also sign an agreement to purchase the house.

The Tribunal found that the Applicant did not satisfy its onus of showing that the 5-year period was satisfied.

Margin scheme

The Applicant contended that it was entitled to utilise the margin scheme for the sale of the residential premises (the Commissioner accepted that the Applicant had purchased the properties under the margin scheme). The Commissioner granted the Applicant an extension of time to obtain written agreements with each purchaser to use the margin scheme. The Applicant did not produce written agreements. The Tribunal found that the Applicant had failed to show that the statutory requirement of a written agreement to use the margin scheme was met.

Input tax credits

The Commissioner contended that because the residential premises were rented out before they were sold, the Applicant was only entitled to claim part of the input tax credits on the construction costs. The Commissioner calculated the apportionment based on the sale price divided by the sum of the sale price and rental income received. The Tribunal found that the basis of the Commissioner’s apportionment was fair and reasonable and it reflected the returns available from sale and rental respectively.

The Commissioner also allowed input tax credits on certain non-construction costs. The Tribunal rejected the application of the Applicant that it was entitled to input tax credits for additional non-construction costs as it could not substantiate those claims.

The Tribunal affirmed the Commissioner’s decision to impose penalties at 25% for failure to take reasonable care.