Edited version of your written advice

Authorisation Number: 1012760120134

Ruling

Subject: GST and attribution

Question 1

Will section 156-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to your supply of the right to develop the Land?

Answer

No.

Question 2

If the answer to question 1 is no, will the Commissioner of Taxation's Determination in Schedule 5 of Goods and Services Tax Ruling GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 apply?

Answer

Yes.

Relevant facts and circumstances

Entity A (You) are registered for GST.

You account for GST on a monthly non-cash basis.

You own parcels of Land.

You have entered into an Agreement with Entity B for the purposes of the Development. You have agreed to allow Entity B to carry out all activities implementing or relating to the development of the Land. You have provided a copy of the Agreement. The relevant extracts are:

Development Fee means the fee payable by Entity B for the right to develop the Land set out in Annexure X and comprising:

(a) the Initial Deposit;

(b) the Stage A Payment;

(c) the Subsequent Stage Payments:

(d) the Fixed Payments; and

(e) the Top Up Payments.

...

Possession means the act of Entity B taking physical possession of a Stage for the purposes of undertaking the Project on that Stage…, which act of taking possession can be no earlier than the date by which Entity B… paid the Stage Payment for that Stage…

…

Stage means a stage of the Project to be effected on portion of the Land designated by Entity B in accordance with this agreement.

…

Stage Payment means:-

(a) in respect of Stage A, the Stage A Payment; and

(b) in relation to any other Stage, the Subsequent Stage Payment,

…

Grant of Development Rights and Undertaking the Project

Development Arrangements

(a) In consideration of the payment by Entity B of the Development Fee (as and when due under this agreement) Entity A grants Entity B the right to develop the Land in accordance with this agreement.

…

Goods and services tax

…

Development Fee

Notwithstanding clause X, the Participants acknowledge and agree as follows:

(a) that the total consideration payable by Entity B in respect of the supply by Entity A under clause X is not currently known, and its ascertainment depends on future events that are not entirety within the control of Entity A, so that the GST payable by Entity A in respect of that supply will be attributable in accordance with the A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination No. 1 (2000) (Cth) and Goods and Services Tax Ruling GSTR 2000/29;

(b) that upon execution of this agreement, Entity A will provide Entity B with a tax invoice for $X (plus (GST), being the minimum amount of the Development Fee that will ultimately become payable;

(c) that within xx Business Days of the tax invoice referred to in clause X being provided, Entity B will pay to Entity A:

(i) the portion of the Development Fee which has become payable under this agreement; and

(ii) the full amount of the GST set out in that tax invoice;

…

In addition to the Development Fee, the LFA provides for Fixed Payments to be made at specified times and Top Up Payments calculated in accordance with the prescribed formula.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 Division 29, and

A New Tax System (Goods and Services Tax) Act 1999 Division 156.

Reasons for decision

In this reasoning, please note:

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Goods and Services Tax Ruling GSTR 2000/35 Goods and services tax: Division 156 - supplies and acquisitions made on a progressive or periodic basis (GSTR 2000/35) explains the application of Division 156.

The Agreement outlines the terms and conditions agreed between you and Entity B in relation to the development of the Land.

Clause X of the Agreement provides that in consideration of the payment of the Development Fee you grant Entity B the right to develop the Land. The background to the Agreement provides that this includes all activities implementing or relating to the development of the Land.

The supply of the right to develop the land by you to Entity B meets all the requirements of a taxable supply under section 9-5.

Under the basic attribution rules in Division 29 if you do not account for GST on a cash basis you are required to attribute all the GST payable on a taxable supply to the earlier of the tax period in which:

• you receive any of the consideration for the supply, or

• you issue an invoice for the supply.

However, Division 156 alters the application of the basic attribution rules where the supply or acquisition and the consideration occur periodically or progressively.

Paragraphs 25 and 26 of GSTR 2000/35 explain that a supply for a period will be one which is made on a continuous basis until the stipulated end point occurs, or the period expires, however a supply will not be for a period merely because there is a stipulated completion date.

Paragraph 27 of GSTR 2000/35 explains that a supply is made on a progressive basis when the contract or agreement provides for stages of the supply during the course of the supply. A supply may also be a progressive supply where services are to be supplied on an ongoing basis.

Although the Agreement provides for possession of the Land in stages and requires payments in respect of stages, the right to develop the Land is granted up front. We consider that the staged possession of land and the payments in relation to those stages relate to how the right to develop the Land will be exercised.

Therefore, it is our view that the right to develop the land was granted at the time of entering into the Agreement and a single taxable supply of the right was made at this time. This supply is not made on a continuous or progressive basis and is not a periodic or progressive supply to which Division 156 would apply.

Question 2

Under section 29-25 the Commissioner may determine in writing the tax periods to which GST payable is attributable in particular circumstances, where he is satisfied that the basic attribution rules apply inappropriately. Such a determination overrides the basic attribution rules but only to the extent provided for in the determination.

The Commissioner has made a written determination under subsection 29-25(1) applying paragraph 29-25(2)(e). The relevant determination is A New Tax System (Goods and Services Tax) (Particular Attribution Rules Where Total Consideration Not Known) Determination (No 1) 2000 (the Commissioner's Determination). See Schedule 5 of Goods and Services Tax Ruling GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

The Commissioner's Determination applies where:

(a) you make a taxable supply

(b) you do not know the total consideration for the supply when any consideration is received for the supply or an invoice is issued relating to the supply, and

(c) the ascertainment of the total consideration depends on a future event that is not entirely within your control;

and either

(d) an invoice is issued relating to the supply, or

(e) any consideration is received for the supply.

The Development Fee as defined in the Agreement includes:

(a) the Initial Deposit

(b) the Stage A Payment

(c) the Subsequent Stage Payments

(d) the Fixed Payments, and

(e) the Top Up Payments.

It is accepted that the potential amounts of the Subsequent Stage Payments, Fixed Payments and Top Up Payments are not known. These are future events that are not entirely within your control.

As the total consideration for the supply is not known, we consider that paragraph 29-25(2)(e) will apply.

Although the eventual total of all Development Fee payments is not known, clause X of the Agreement provides that the minimum amount of the Development Fee that will ultimately become payable will be $X (plus GST). Consequently, you have raised a tax invoice for this amount.

Therefore, in accordance with paragraph 160 of GSTR 2000/29 and paragraph 4 of Schedule 5, you will attribute GST payable on this invoice to the tax period in which this invoice was raised.

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