Edited version of your private ruling

Authorisation Number: 1012473616212

Ruling

Subject: GST and supply of real property

Question 1

Does Item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) apply to the supply of developed land (Lots A and B) made by you.

Answer

Yes

Relevant facts and circumstances

· You are a wholly-owned government corporation established under a State / Territory Act and are registered for goods and services tax (GST).

· After 1 July 2000, Lots A and B located within a State / Territory in Australia were transferred to you by way of Internal Equity Transfer. The phrase "Internal Equity Transfer" refers to the transfer of land from the consolidated government pool to a specific government agency wholly owned by the government. Simply it represents the transfer of crown land to one of the Government business divisions.

· Following a Cabinet Decision State Minister for Lands and Planning (Minister) offered you an estate in fee simple over Lots A and B, being the first stage of a land development. The grant of the Lots to you was for nil cost.

· The relevant land was virgin bush land as at 1 July 2000 and as such was included in the consolidated government pool of land prior to 1 July 2000.There was no improvements to the land as at 1 July 2000.

· At the time of the transfer, you were a member of the State Body Politic GST Group. Sometimes after the vesting of the Lots to you, you exited the State Body Politic GST Group.

· You have entered into an agreement (Agreement) with XYZ Pty Ltd (the developer) to carry out a development project on the Lots.

Key points in the State / Territory Act

· An act to establish a statutory corporation to develop and manage land for use by new and existing industries in the State / Territory, for use for residential developments and for associated activities, and for related purposes.

· Establishment of Corporation

· is a corporation sole;

· has a common seal;

· is capable, in its corporate name, of acquiring, holding and disposing of real including leasehold) and personal property and of suing and being sued.

· Functions

· to develop and promote project land use by industrial businesses; and

· to develop and promote project land for use for residential developments; and

· to undertake residential developments on project land; and

· to provide services, facilities and general assistance to facilitate the establishment and conduct of industry on project land; and the use of project land for residential development; and

· to carry out or facilitate other activities associated with the development or management of project land , the use of project land for residential developments, including commercial activities, recreational activities; and activities relating to heritage and environmental conservation.

· Minister may give you direction

· You are an Agency for the purposes of a number of the State / Territory Acts

· Acquisition of estates in fee simple in Crown land by you

· You may be granted in fee simple in Crown land, or a lease of Crown land under the Crown Lands Act.

· If you are granted land the Minister must give notice of the grant by notice in the Gazette.

· You must, in writing, report to the Minister in respect of your financial performance during that period and its expected financial performance during the next 2 reporting periods.

Provision of financial information to Treasurer

· The Treasurer may at any time request you to provide the Treasure with the information that the Treasurer considers will enable him or her to accurately assess your financial affairs.

· You must comply with the Treasurer's request.

Annual report

· At the end of each financial year you must prepare a report on the administration of the Act and your operations during the financial year.

· The report is to include a copy of any directions and reasons for directions given to you, and any objections to the directions made by you.

· The Minister must lay a copy of the report before the State / Territory Parliament with after receiving the report.

· You may make by-laws relating to the management of your land.

· If a penalty is imposed on a person as a result of a prosecution for an offence committed against a by-law, or a penalty is payable under an infringement notice in lieu of prosecution of an offence committed or allegedly committed against a by-laws, the penalty may be recovered by you as a debt due and payable to you by the person on whom it is imposed.

Relevant legislative provisions

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

Section 9-5

Division 75

Summary

You can apply Item 4 of the table in subsection 75-10(3) of the GST Act to the supply of developed land.

Reasons for decision

Goods and services tax ruling GSTR 2006/5 discusses the meaning of 'Commonwealth, a State or a Territory' for the purposes of a number of provisions of the GST Act, including section 75-10 of the GST Act - the amount of GST on taxable supplies (of freehold interest).

You are not a government entity as a corporation which is not a 'government entity' as defined in section 195-1 of the GST Act because a corporation does not meet the requirement in paragraph (e) of the definition.

You are a statutory corporation which means a corporation, commission or authority incorporated by name for a public purpose by a law of the State / Territory.

However, the 'Commonwealth, a State or a Territory' is not limited to the department, agencies and organisation defined as a government entity in section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) and may include a corporation.

It is the view of the Commissioner in paragraph 8 of GSTR 2006/5 that whether a corporation is a 'State' is to be determined in accordance with the principles developed by the High Court of Australia in the cases concerning the meaning of a State in section 114 of the Australian Constitution.

Paragraph 11 of GSTR states:

The fundamental principle established by these cases is that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State. On the other hand, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State - so that the concept of a State activity cannot be realistically applied to that which the corporation does - the corporation is not the State.

Paragraph 12 of GSTR 2006/5 provides a number of principles to be considered.

· Pursue the interest of the State or the public

You assist key industry sectors to take advantage of major industrial project in the region and facilitate strategic industrial land development to further stimulate economic growth.

You have applied its substantial knowledge and experience to the development of land for residential use and to increase the range of housing options for State / Territory residents as part of the State Government's housing strategy.

· Ownership and management of a corporation

You are a statutory corporation established to develop and manage land for use by new and existing industries in the State, for use for residential developments and for associated activities, and for related purposes.

You are wholly owned by the State / Territory and are an Agency.

· The participation of executive government in making decisions

In performing its function and exercising its powers, you are subject to the directions of the Minister.

The Minister may direct you to act in a manner that is not commercial and the Minister must specify in the direction the manner which you must act.

· Financial arrangement

The Chief executive Officer is the Accountable Officer. The Treasurer may direct the Accountable Officer to submit the financial statement directed to be prepared to the Auditor-General who must audit it and report on the statement to the Minister and forward a copy of the report to the Accountable Officer.

Written approval from the Treasury is required to borrow money or raising money otherwise than by borrowing.

You must, in writing, report to the Minister in respect of each financial year or other reporting period determined by the Minister.

The Treasury may at any time request you to provide the Treasurer with the information that will enable the Treasurer to accurately assess the financial affairs and you must comply with the request.

· The ability of the Government to control the appointment/removal of directors

The Minister must, in writing, appoint a Chief Executive Officer.

The Minister must, in writing, appoint the members of the Board including a Chairperson and the Deputy Chairperson of the Board.

The Minister may terminate the appointment of a member of the Board on the ground of inability, inefficiency, misbehaviour or mental incapacity.

The power to make by-laws

You may make by-laws.

Recovery of penalties imposed under by-laws.

It is considered that you are discharging the government function for the State / Territory. The State is carrying on the land development business/function through you.

Therefore, you are the State for the purposes of applying the GST provisions referred to in paragraph 1 of GSTR 2006/5 (including subsection 75-10(3) of the GST Act).

Can you apply the margin scheme

GSTR 2006/9 discusses in paragraphs 80 to 91 the vesting in government authorities which are empowered by legislation to compulsorily acquire an interest in real property. The effect of compulsory acquisition of the real property is that every registered and unregistered interest in the property is extinguished, and each person who formerly held such an interest has that holding converted into a claim for compensation.

In particular, paragraph 84 of GSTR provides:

Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that affects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner.

Following a Cabinet decision, the Minister initiated the process of vesting to you the ownership of the Lots. The vesting extinguished all the interest and rights of the Minister in the Lots. However, the Minister who had not received any compensation (as none was payable) had not done anything to cause the vesting to take place.

In these circumstances, we consider that notwithstanding the framework also applied to the Minister, he did not make a supply of real property to you for GST purposes. Further, we consider that the extinguishment of the interest and rights the Minister had in the Lots was not a supply made by him. This is because he took no action to cause the vesting of the Lots to you.

Therefore, although you acquired the Lots pursuant to the vesting to you of the ownership of the Lots, you did not acquire the Lots through a supply (vesting) or taxable supply (no consideration) made by the Minister.

Therefore, you can apply the margin scheme for the supply of the Lots.

Applying item 4 in the table in subsection 75-10(3) of the GST Act

You have relied on goods and services tax determination GSTD 2006/4 for the GST treatment of your supplies of the developed land. This Determination deals with the question 'does item 4 in the table in subsection 75-10(3) of the GST Act apply if real property was vested in a government department or agency on or after 1 July 2000 but was held by another department or agency of the same State or Territory since before 1 July 2000.

The Determination provides an affirmative answer to the question and stated that item 4 of the table in subsection 75-10(3) of the GST Act applies if:

· The supplier is a government department or agency that is a part of the Commonwealth or a State or Territory;

Following the discussion above, you are considered to be the 'State' for the purposes of applying the GST provisions referred to in paragraph 1 of GSTR 2006/5 (including subsection 75-10(3) of the GST Act). You are a part of the State / Territory Government.

The real property is vested in that government department or agency on or after 1 July 2000 another department or agency of the Territory held the real property before 1 July 2000.

After 1 July 2000, following a Cabinet Decision Number the State Minister for Lands and Planning (Minister) offered you an estate in fee simple over Lots A and B, being the first stage of the development. The Lots were vested to you for no consideration by way of Internal Equity Transfer. That is, the transfer of land from the consolidated government pool to a specific government agency wholly owned by the government.

· There is no improvement on the land as at 1 July 2000

The relevant land was virgin bush land as at 1 July 2000 and was included in the consolidated government pool of land prior to 1 July 2000.

Item 4 of the table in subsection 75-10(3) of the GST Act

Therefore, you can apply the margin scheme and the relevant method of working out the margin is the valuation of the Lots under Item 4 of the table in subsection 75-10(3) of the GST Act.

The valuation

Paragraph 75-10(3)(b) of the GST Act requires an approved valuation of the freehold interest as at the day specified in the third column of the table in subsection 75-10(3) of the GST Act.

As the supply of real property is made on or after 1 March 2010, the relevant valuation determination that you need to follow is the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1. A copy of the determination is attached.

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