03 Aug 09 Change of creditable purpose in relation to residentail development - GXCX
The AAT has held that a taxpayer which carried out the renovation of an existing building to create 91 apartments which it intended to sell, but which subsequently rented out 22 apartments that remained unsold, was liable to pay an additional $137,140.00 by way of a GST increasing adjustment. An intention to sell is a creditable purpose; in contrast, residential rental is not a creditable purpose. Where the extent of a creditable purpose is changed by later events the GST legislation, in particular Division 129 of the the GST Act, requires that an “increasing adjustment” or a “decreasing adjustment” be made in certain circumstances.
The taxpayer argued that it had a dual purpose of holding the apartments for a creditable purpose (sale) even after commencing to rent them. However, the AAT found otherwise. It said, at para 35:
"During the period in question the goods and services referable to the 22 apartments were not applied for the creditable purpose of selling merely because the holding company had an intention to sell at some time in the future. The application during this period was entirely for a non-creditable purpose. Whilst I can accept that the holding company held the intention to sell at some time in the future I do not regard the holding of that intention, without more, as amounting to an application of the goods and services."
The Commissioner had originally sought to impose an increasing adjustment of approximately $210,300. He had also sought to impose shortfall penalty tax (at the rate of 50%) of $105,598.50 on the basis that the taxpayer had been reckless. However, at the hearing, the Commissioner conceded that if he was otherwise successful, the correct amount of the increasing adjustment was only $137,140 (as calculated by the taxpayer), and that the taxpayer did exercise reasonable care and, accordingly, no shortfall penalty ought to have been imposed. On the basis of these concessions, the AAT varied the taxpayer's objection decision by reducing the GST liability to $137,140.00. The objection decision relating to the penalty assessment was set aside and the decision substituted that that objection be allowed in full: GXCX and FCT  AATA 569 (AAT, Hack SC DP, 31 July 2009).
For a copy of the decision, go here