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Edited version of your private ruling
Authorisation Number: 1012557532200
Ruling
Subject: GST and compensation for the granting of an easement
Question 1
Will the granting of an easement by you be subject to GST?
Answer
No.
Question 2
Will the answer to Question 1 differ if the easement is granted voluntarily rather than compulsorily?
Answer
No.
Relevant facts and circumstances
A seeks an easement over your property (Property). You and your husband purchased the Property many years ago as part of a larger parcel of land. You have lived on the land since purchase.
Your husband ran a commercial operation on the Property up to 19xx.
You have subdivided some of the land and sold it off over the years. You are not registered for GST and do not hold an ABN either solely or as a partnership.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-20
Reasons for decision
Questions 1 and 2
Summary
The granting of the easement to A by you will not be subject to GST as you are not making a supply in carrying on an enterprise. Given that you are not carrying on an enterprise, the granting of the easement will not be subject to GST regardless of whether it is granted voluntarily or taken compulsorily.
Detailed reasoning
GST is payable by you where you make a taxable supply.
You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that
you *carry on; and
(c) the supply is *connected with Australia; and
(d) 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.
(*Denotes a term defined in section 195-1 of the GST Act)
In your case, you have satisfied the requirements of paragraph 9-5(a) and 9-5(c) of the GST Act. That is, you have supplied rights to A in return for consideration and your supplies are connected with Australia as the Property is situated in Australia.
With regard to paragraph 9-5(b) of the GST Act, the supply you make must be in the course or furtherance of an enterprise that you carry on. Prior to granting the easement you were not carrying on any enterprise. Therefore, the granting of the easement could not have been part of any enterprise that you carry on. Hence we must consider whether the granting of the easement in itself may be regarded as an enterprise.
Section 9-20 of the GST Act defines enterprise to include an activity or series of activities done:
· in the form of a business
· in the form of an adventure or concern in the nature of trade
Miscellaneous Taxation Ruling MT 2006/1 and Goods and Services Tax Determination GSTD 2006/6 provide guidance on what is an activity, or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade.
Generally, a business is a trade engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an occasional or one-off transaction that does not amount to a business.
Further, paragraph 244 of MT 2006/1 states:
An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.
From the information you have provided, it is considered that the activity of the granting of the easement over the Property is not in the nature of a business because there is no repetition or regularity, it is a one-off transaction.
It is also considered that your activity of the granting of the easement over the Property is not an adventure or concern in the nature of trade. This is because the underlying asset (the Property) is a capital asset that is not held for the purposes of trade and it does not constitute a commercial activity.
As the grant of the easement over the Property is not made in the course of an enterprise that you carry on, the requirement of paragraph 9-5(b) of the GST Act is not satisfied.
As all the requirements of section 9-5 of the GST Act are not satisfied, you are not making a taxable supply. Therefore, the compensation is not consideration for any taxable supply.
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