Decision impact statement
Hornsby Shire Council and Commissioner of Taxation
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Court Citation(s):
[2008] AATA 1060
2008 ATC 10-061
71 ATR 442
Venue: Administrative Appeals Tribunal
Venue Reference No: 2007/5657
Judge Name: Professor GD Walker, Deputy President; and J Block, Deputy President
Judgment date: 26 November 2008
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
GST
meaning of supply
compulsory acquisition of quarry by notice in the Gazette
whether some form of action is required for the purposes of s 9-10(1) of the GST Act
whether a legal obligation was incurred under para 9-10(2)(g)
surrender under para 9-10(2)(d)
relevance of deed of release in respect of the compensation.
Précis
Outlines the ATO response to the Tribunal's treatment, for GST purposes, of a compulsory acquisition of land by a government entity in circumstances where the land owner exercised a statutory right to compel the government entity to acquire its land.
Decision Outcome:
Adverse to the ATO
Brief summary of facts
CSR Ltd owned a quarry in Hornsby which was zoned Open Space A. Under the Hornsby Shire Local Environment Plan 1994 (LEP), owners of land which was zoned Open Space A could require that the taxpayer acquire the land. In accordance with its rights under the LEP, on 22 March 2001 CSR Ltd (CSR) notified the taxpayer that it required the taxpayer to acquire the quarry.
The taxpayer initially resisted the request; but after an action was taken by CSR in the Land and Environment Court, a notice pursuant to s 19 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) was published in the Gazette. The effect of the notice was that the land was vested in the taxpayer. Under s 37 of that Act, CSR became entitled to be paid compensation.
The taxpayer paid to CSR a total of $26,508,771.28 by way of compensation. The taxpayer sought to claim an input tax credit for the acquisition of the land.
Issues decided by the tribunal
The Tribunal held that CSR had made a supply on the basis that CSR entered into an obligation, within paragraph 9-10(2)(g), when it requested that the taxpayer acquire the land, or on the basis that CSR surrendered the land, within paragraph 9-10(2)(d), as a result of requesting the taxpayer to acquire the land.
Although it was unnecessary for them to consider the issue, nevertheless, the Tribunal agreed with the Tax Office's view that the making of a supply requires some form of positive action on the part of the supplier (paragraph 70). In this case, the Tribunal was satisfied that CSR had taken positive action by exercising its right to require the taxpayer to acquire the land.
The Tribunal also rejected the taxpayer's contention that CSR's entry into a Deed of Release surrendering its rights in consideration of the payment of the compensation constituted a supply (paragraph 54).
Tax Office view of Decision
The Commissioner agrees with the Tribunal's view that the making of a supply requires some positive action on the part of the supplier. The Tribunal's decision affirms the Tax Office's view in GSTR 2006/9 that, as a general principle, an entity must do something in order to make a supply.
The Commissioner accepts the Tribunal's finding that, on the specific facts of this case, CSR did make a supply of the land, by way of surrender under paragraph 9-10(2)(d), to the Council. In particular, CSR undertook positive action by initiating the process that directly led to the compulsory acquisition of the land by the Council.
It was the view of the Tribunal that CSR incurred legal obligations when, pursuant to the LEP, it gave notice to the Council requiring the Council to acquire the land. On the basis of this view, the Tribunal considered that paragraph 9-10(2)(g) was also applicable. It is the view of the Commissioner that this finding of the Tribunal is explicable on the basis that any such obligations entered into by CSR were a precursor to, or a part of, the surrender of the land.
The Commissioner considers that the Tribunal's decision is broadly consistent with his view in GSTR 2006/9 that an owner of real property does not make a supply when an acquiring authority initiates the process of compulsorily acquiring real property and the relevant interest is vested in the relevant government authority by extinguishing any previous interests in the land (as opposed to an acquisition of the real property by agreement).
The Commissioner accepts the Tribunal's decision and has decided not to lodge an appeal.
Administrative Treatment
None
List of Rulings and Determinations Affected
GSTR 2006/9
Implications on current Public Rulings & Determinations
In light of the Tribunal's decision, the Tax Office has amended the relevant paragraphs in GSTR 2006/9 Goods and Services Tax: supplies, relating to the vesting of real property in government authorities. Taxpayers who relied on the ruling as in force before this amendment to determine their GST position have the protection of section 105-60 of Schedule 1 to the Taxation Administration Act 1953
Implications on Law Administration Practice Statements
None
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
9-5
9-10
11-5
11-20
Income Tax Assessment Act 1936
26
26AAA
59
Land Acquisition (Just Terms Compensation) Act 1991 (NSW)
20
37
Environmental Planning and Assessment Act 1979 (NSW)
26
27
Taxation Administration Act 1953
105-60
Case References:
Westley Nominees Pty Ltd & Anor v Coles Supermarkets Australia Pty Ltd & Anor
(2006) 152 FCR 461
2006 ATC 4363
62 ATR 682
Fidler v Port Stephens Council (24 September 1996)
BC9606976
[1996] NSWLEC 257
CSR Ltd v Hornsby Shire Council
[2004] NSWSC 946
(2004) 2004 ATC 4966
(2004) 57 ATR 201
Databank Systems Limited v Commissioner of Inland Revenue
[1987] 2 NZLR 312
Kirkness (Inspector of Taxes) v John Hudson & Co Ltd
[1955] AC 696
Shell's Annandale Farm (Pty) Ltd v Commissioner for South African Revenue Service
62 SATC 97
IRG Technical Services Pty Ltd & Anor v Federal Commissioner of Taxation
(2007) 165 FCR 57
[2007] FCA 1867
(2007) 69 ATR 433
(2007) 2007 ATC 5326
G Stewart & T Hammond t/a GT Shooting v Commissioners of Customs & Excise
[2001] EWCA Civ 1988
[2002] Simon's Tax Cases 255
[2002] BTC 5238
Parker Hale Ltd v Customs & Excise Commissioners
[2000] Simon's Tax Cases 388
Shaw v Director of Housing and State of Tasmania (No. 2)
(2001) 10 Tas R 1
159 FLR 322
(2001) 2001 ATC 4054
(2001) 46 ATR 242