ATO Interpretative Decision
ATO ID 2003/1173
Goods and Services Tax
GST and compulsory acquisition of land - legal interestFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a property developer, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when land that it owns is compulsorily acquired by a statutory authority?
Decision
No, the entity is not making a taxable supply under section 9-5 of the GST Act when land that it owns is compulsorily acquired by a statutory authority as there is no supply of the land.
Facts
The entity is a property developer. The entity is registered for goods and services tax (GST). A statutory authority compulsorily acquires land that the entity owns.
In accordance with the relevant State Act dealing with compulsory acquisitions, the statutory authority made the compulsory acquisition by way of gazettal of an acquisition notice. The effect of a gazettal under this particular state legislation (Statute) is that:
- (a)
- the legal ownership of the land, described in the notice, is vested with the particular authority acquiring the land, and
- (b)
- the land becomes freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land.
Reasons for Decision
Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. One of the requirements of a taxable supply is that an entity makes a supply for consideration (paragraph 9-5(a) of the GST Act).
The term 'supply' is a broad concept for GST purposes and is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. The meaning of the term 'supply' is discussed in Goods and Services Tax Ruling GSTR 2001/4. Paragraph 22 of GSTR 2001/4 provides that a supply is essentially 'something which passes from one entity to another'. Further, paragraph 25 of GSTR 2001/4 provides:
Subsection 9-10(2) refers to two aspects of a supply; the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment, surrender or release.'
Therefore, in the GST Act, the term 'supply' covers not only the subject of the transaction - the thing that passes - but also includes the action by which the thing passes from one entity to another. In addition, by use of the word 'make' in the phrase 'you make the supply' in paragraph 9-5(a) of the GST Act, there is a requirement for a supplier to take some action to cause a supply to be made. This means that the entity, the property developer, must take some action or do something for a supply of the land to occur.
The statutory authority compulsorily acquired the land by way of gazettal of an acquisition notice. The effect of the gazettal is that the legal ownership of the land, described in the notice, is vested in the particular authority acquiring the land, and, the land becomes freed from any other interests. The statute has the effect of extinguishing the property developer's interest in the land.
In view of the facts, it is necessary to consider if there is a supply of the land in these circumstances. A transfer of the legal interest in land is within the definition of supply in section 9-10 of the GST Act. Also, the surrender of real property is within the definition of supply.
However, the entity did not take any action to cause its legal interest to be transferred, or surrendered to the relevant authority. The legal interest was divested from the entity by operation of the statute, upon gazettal of the acquisition notice. There is no supply.
Accordingly, the entity is not making a taxable supply under section 9-5 of the GST Act when land that it owns is compulsorily acquired by a statutory authority.
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
paragraph 9-5(a)
section 9-10
subsection 9-10(1)
subsection 9-10(2)
paragraph 9-10(2)(d)
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2001/4
ATO ID 2003/1172 ATO Interpretative Decisions overturned by this decision
ATO ID 2001/445
ATO ID 2001/446
Keywords
Goods and services tax
GST property & construction
GST sale of real property
GST supplies & acquisitions
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 August 2003 | Original statement |
| 15 December 2006 | Archived |