Case analysis – A Taxpayer and Commissioner of Taxation [2011] AATA 160

A Taxpayer and Commissioner of Taxation [2011] AATA 160



This case provides direct support for the Commissioner’s view in GSTR 2009/4 that an apportionment method for the purposes of Division 129 adjustments based upon the effective life of premises is not considered fair and reasonable.


The applicant was a property developer and constructed a complex comprising retail shops, a commercial carpark and residential apartments, with the intention to sell the complex on completion.  After completion, the applicant had claimed full input tax credits.  Some 9 months later, after the applicant had been unable to sell a number of the residential apartments, the applicant began to lease the apartments while retaining the intention to sell them

The applicant accepted that an increasing adjustment was required to be made under section 129-40 of the GST Act but the issue before the Tribunal was the correct basis for the adjustment.  The applicant initially determined the adjustment by reference to GSTR 2009/4 and the calculations were accepted by the Commissioner.  However, the applicant subsequently objected to the calculations after forming the view that the Ruling was too narrow in its interpretation of Division 129 of the GST Act.

The essential issue was whether the effective life of the apartments in question provided an appropriate methodology to determine a fair and reasonable basis of apportionment.


The applicant contended that the intended application of the residential apartments should be 40 years, consistent with Division 43 of the Income Tax Assessment Act 1997 which deems buildings to have a life expectancy of 40 years.  On this basis, the applicant should be regarded as having an intended creditable use for the residential apartments of 40 years or 480 months and the applicant’s non-creditable use of the apartments should be calculated as 2 months out of a maximum of 480 months (i.e., giving the applicant a very small adjustment).

Not surprisingly, the Commissioner sought to rely on his views in GSTR 2006/4, in particular the view that an apportionment method based on an effective life method was not fair and reasonable.  The Tribunal clearly agreed with the Commissioner as the judgment contains large extracts from the Ruling and concludes with the following statement (at [27]):

GST 2009/4 contains a cogent explanation as to why an apportionment method based on the effective life of the premises is not considered fair and reasonable.  The Tribunal adopts that reasoning and sees no need to elaborate further.

8 November 2011

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