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Ruling

Subject: GST and the donation of land

Question

Are you making a taxable supply when you supply a portion of your property to the local councils?

Answer

No

Relevant facts and circumstances

You are registered for GST effective from 1 July 2000. You carry on an enterprise of providing development consultancy services. You are currently undertaking a residential development on land adjoining a property you own.

Your property (the Property) was a denuded farm that now has been transformed into a ecosystem.

You have offered to transfer a portion of your property to Y local shire councils for the purpose of the development of a facility.

You propose to enter an Agreement with the local councils detailing the terms of the transfer of land. You have provided the latest draft of the Agreement.

The Agreement provides that prior to the transfer of land a number of expectations are envisaged including:

· Unanimous agreement between all parties regarding the design of the facility.

· Submission of the design plans to an external design review panel to ensure urban design, environmental impact, thermal efficiency and sustainability considerations are met as permitted under the funding committed to the construction of the facility.

Commencement of the rezoning process.

Testing and clearance of the land for soil, contamination, aboriginal heritage and native vegetation at the shared cost of the councils followed by a professionally prepared feasibility study for the construction and operation of the facility upon the land also at the shared cost of the councils.

The councils obtaining commitment from other levels of Government for such contributions to funding the development and/or operation of the facility as they think prudent.

Following the above steps being completed, you would transfer the land free of security interests to the councils under the following terms and conditions:

· The councils do not pay a price or other monetary value for the transfer;

· The councils bear the costs of preparing and lodging for deposit at the Land Titles Office a plan of division to divide the land from the balance of the Property;

· The councils bear the stamp duty and Land Titles Office fee on the transfer;

· The councils acquire the Site as tenants in common; and

· The councils grant you an option to purchase back the site free of security interests for $1.00, exercisable if either:

before substantial development work for the facility is commenced on the Site, the councils publicly abandon the proposal for the facility;

X months after the transfer, substantial development work for the Facility has not commenced on the land.

The Agreement also envisages that on completion of the facility, the facility will operate year round to the fee-paying public. The facility will be branded as a joint initiative of the councils, with grateful contribution from you with any trading profit or loss being shared equally between the councils.

The Agreement provides that the Agreement is legally binding on the parties and may be amended only by written agreement of the parties.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-15

Section 195-1

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case:

· you will be making a supply in the course of an enterprise that you carry on,

· the supply is connected with Australia

· you are registered for GST and

· the supply will not be input taxed or GST-free in your factual situation.

Therefore the outstanding issue is whether you will be making the supply of the land for consideration.

The term 'consideration' is defined in section 195-1 of the GST Act as 'any consideration, within the meaning given by section 9-15, in connection with the supply'. The meaning of consideration in section 9-15 of the GST Act includes any payment, act or forbearance in connection with, in response to or for the inducement of a supply.

In this case, the councils have entered into certain obligations in connection to your supply of the land.

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) provides guidance in regard to 'consideration' and specifically non-monetary consideration.

Paragraph 51 of GSTR 2001/6 states that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply.

As mentioned above, consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. Paragraph 80 of GSTR 2001/6 continues stating that however, things such as acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction.

Paragraphs 81 to 83 state:

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

83. Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular, the true character of the transaction may characterise the payment as a condition of the contract rather than the provision of non-monetary consideration. For example, in many cases, agreeing to enter into a contract to receive a supply for a specific period of time is not non-monetary consideration for that supply.

Given the above, it is considered that the entering into obligations by the councils are conditions of the contract governing the supply of the land and not the provision of non-monetary consideration. The obligations entered into by the councils are not considered 'compensation' received by you for supplying the land and do not have an economic value or independent identity separate from the supply of the land.

In conclusion, you will not be making a taxable supply when you supply the specified portion of your property to the councils as you are not making the supply for consideration.

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