ATO Interpretative Decision

ATO ID 2005/100 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn as it is superseded by Goods and Services Tax Ruling GSTR 2006/9 - Goods and services tax: supplies
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a landowner that is having part of its land compulsorily acquired by a government authority, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when, at the entity's request, the government authority also compulsorily acquires the remaining part of the entity's land?

Decision

No, the entity is not making a taxable supply under section 9-5 of the GST Act when, at the entity's request, the government authority also compulsorily acquires the remaining part of the entity's land as the entity is not making a supply.

Facts

The entity is a landowner that is registered for goods and services tax (GST). An authority advises the entity that it will compulsorily acquire part of the land that the entity owns. This compulsory acquisition of part of the entity's land does not constitute a supply of land for the purposes of the GST law (see ATO ID 2003/1173).

While some land remains after the compulsory acquisition, it is of no practical use or value to the entity and the entity requests the authority to take the remaining land.

The relevant statute dealing with compulsory acquisitions provides that where this occurs, the remaining land will also be compulsorily acquired if the entity and the acquiring authority agree that it is of no practical use or value to the entity. By reason of this, the entity and the acquiring authority agree that the acquiring authority shall take the whole of the entity's land.

Under the statute, the whole of the land is then acquired by way of gazettal of a resumption notice. The effect of a gazettal under this particular statue is that:

(a)

the legal ownership of the land, described in the notice, is vested with the authority acquiring the land, on and from the date of the notice, and

(b)

all of the land becomes absolutely freed and discharged all trusts, obligations, mortgages, charges, rates, contracts, claims, estates or interest of what kind soever.

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 to include '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 that:

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 landowner, must take some action or do something for a supply of the land that remains to occur.

An authority advises the entity that it will compulsorily acquire part of the land that the entity owns. The land remaining after the compulsory acquisition is of no practical use or value to the entity and the entity requests the authority to take the remaining land. While the compulsory acquisition of part of the entity's land does not constitute a supply of land for the purposes of the GST law, it is necessary to consider if there is a supply of the remaining land in these circumstances.

The effect of a gazettal under this particular statue is that the legal ownership of the land, described in the notice, is vested with the authority acquiring the land, on and from the date of the notice and all of the land becomes absolutely freed and discharged all trusts, obligations, mortgages, charges, rates, contracts, claims, estates or interest of what kind soever.

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, although the entity requested the remaining land to be taken, it is by the operation of the statue, that the remaining land is compulsorily acquired, along with the initial portion of land. The statute has the effect of extinguishing the entity's interest in the land and 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, at the entity's request, the government authority also compulsorily acquires the remaining part of the entity's land as the entity is not making a supply.

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)

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2001/4

Related ATO Interpretative Decisions
ATO ID 2003/1173
ATO ID 2005/101

Keywords
Goods and services tax
GST property & construction
GST sale of real property
GST supplies & acquisitions

Business Line:  GST

Date of publication:  8 April 2005

ISSN: 1445-2782