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Authorisation Number: 1051284379405
Date of advice: 22 September 2017
Subject: GST and removal compensation payment
Is the removal compensation payment received by an entity consideration for a taxable supply made by the entity?
Yes. The removal compensation payment received by the entity is consideration for a taxable supply.
Relevant facts and circumstances
An entity received a ‘compensation payment’ from an entity for allowing access to its property, for the purposes of doing some upgrade works to some infrastructure.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 sections 9-5; 9-10; 9-15.
Reasons for decision
Section 9-5 of the of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), provides that an entity makes a taxable supply if the supply is made for consideration, in the course or furtherance of the entity’s enterprise, the supply is connected with the indirect tax zone and the entity is registered or required to be registered.
However, the supply is not a taxable supply to the extent it is GST-free or input taxed.
Where all the elements of section 9-5 of the GST Act are satisfied then a supply will be taxable.
The definition of supply is very broad.
Subsection 9-10(1) of the GST Act provides that a supply is any form of supply whatsoever.
According to subsection 9-10(2) of the GST Act without limiting subsection 1, supply also includes the following:
an entry into, or release from, an obligation:
(i) to do anything;
(ii) to refrain from an act;
(iii) to tolerate an act or situation;
In this case the entity signed a consent form allowing another entity’s authorised contractors to the property for the purposes of carrying out the upgrade works until completion. Therefore, in this case the entity entered into a contractual agreement to tolerate an act or situation (access to the property for the purposes of the upgrade works) during a contractually defined period.
Consideration is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance in connection with, in response to or for the inducement of a supply of anything.
In this case consideration was provided.
Goods and services tax ruling: financial assistance payments (GSTR 2012/2) explains the Commissioner's views on when a financial assistance payment is consideration for a supply.
Paragraph 28 of GSTR 2012/2 has been reproduced below:
Payment for the entry into an obligation to do or refrain from doing something
28. Where a supply is constituted by the payee entering into an obligation with the payer to do or refrain from doing something and the payment is made to secure that obligation, there is a sufficient nexus between the payment and the obligation. This is because the financial assistance payment is made in connection with, in response to, or for the inducement of the entry into the obligation.
For there to be a taxable supply in relation to the transaction described in this ruling there needs to be a relevant nexus between the removal compensation payment and the supply.
It is our view that the payment received by the entity is in connection with and for the inducement of tolerating an act or situation.
A supply referred to under any of the paragraphs within subsection 9-10(2) of the GST Act would be taxable where all the requirements under section 9-5 of the GST Act are satisfied.
Therefore, in this case the entity made a taxable supply when it signed the consent form allowing access to the land for the upgrade works during a contractually defined period