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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012924496279

Date of advice: 10 December 2015

Ruling

Subject: GST and property

Question 1

Will the consideration for the supply (grant) of the Development Licence by Entity A to Entity B, be the nominal consideration and the outgoings paid by Entity B?

Answer

Yes

Question 2

Answer

Answer

Answer

Question 3

Answer

Yes

Answer

Yes

Answer

Yes

Question 4

Answer

Yes

Question 5

Answer

Yes

Answer

Question 6

Upon Entity B making a future supply of a Sale Lot to a third party:

Answer

No

Answer

Yes

Answer

Relevant facts and circumstances

Note

The following documents have not been drafted at the time of this ruling application and have not been considered when preparing a response to the questions posed:

Entity B (you) are a company limited by guarantee.

The objects of Entity B are set out in its Constitution.

You are an "ACNC-registered charity" as defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and have been endorsed by the Commissioner as a charity under section 176-1 of the GST Act.

You are registered for GST and account for GST on an accruals basis.

The sole member of Entity B is Entity C.

Entity C is a charity registered by the ACNC. Entity C is a public benevolent institution endorsed to access the GST concession, the income tax exemption and the fringe benefits tax exemption. Entity C is also a deductible gift recipient.

Entity A is registered for GST.

Entity A issued a Call for Submissions (CFS) seeking submissions to increase the supply of affordable housing.

Entity C responded to the CFS with a proposal that puts forward an investment model for the development of a portfolio of affordable and social housing to be built on land to be made available by Entity A.

Entity C was awarded in principle the right to develop the Development Lots. Entity C then nominated you to enter into the Agreement For Licence (AFL) with Entity A and subject to the terms of the AFL, the Development Licence with the Entity A.

Pursuant to the AFL, you and Entity A will enter into the Development Licence upon satisfaction or waiver of conditions.

Pursuant to the Development Licence entered into between Entity A (as Licensor) and you (as Licensee):

You will use each Sale Lot to supply residential accommodation for consideration that is less than 75% of the GST inclusive market value of the supply.

In relation to the Retained Lots, it is conceivable that Entity A will either:

You may from time to time, in the future, need to sell some or all of the Sale Lots in order to service the finance for the Development Works and to repay the Funding Provider. Such future sales will be conducted in accordance with the Post Settlement Disposal programme to be agreed between Entity A, you and the Funding Provider having regard to the objective of increasing the supply of affordable housing.

You have provided the following documentation in support of your ruling application:

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-250,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 176-1(1),

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-17,

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 and

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75.

Reasons for decision

Note: In this ruling

Question 1

Will the consideration for the supply (grant) of the Development Licence, by Entity A to you, be the nominal consideration and the outgoings paid by you?

Under section 195-1, 'consideration' for a supply or acquisition means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition. Subsection 9-15(1) provides that consideration includes:

Under subsection 9-15(2), it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2001/6, Goods and services tax: non-monetary consideration (GSTR 2001/6), paragraph 12, states that a 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind form, such as:

Paragraph 31 of GSTR 2001/6 goes on to say that where parties are dealing at arm's length and the consideration is wholly monetary (that is, 'expressed as an amount of money'), you do not need to establish the market value of the consideration to work out the price.

In this case, a Development Licence is granted by Entity A (Licensor) to you (Licensee) to enable you to undertake Development Works and erect the Dwelling Units on the Development Lots. Clause X of the Development Licence outlines the payments to be made by the Licensee. This includes:

We consider that the $xx fee paid by you to Entity A is consideration for the supply of the Development Licence by Entity A to you.

Goods and Services Tax Determination GSTD 2000/10, Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises (GSTD 2000/10) discusses the payments made by a tenant under a commercial property lease.

Paragraph 1 of GSTD 2000/10 states that a supply of premises under a commercial property lease together with the services required by the tenant to use the premises will be a single supply of real property. Where a single supply is made, the reimbursement or payment of the Landlord's outgoings is consideration for the supply of the premises.

Paragraph 2 of GSTD 2000/10 states that the consideration for the supply of premises by a landlord includes amounts which are paid by the tenant under the terms of the lease:

Consequently, those payments outlined under items 2 to 4 above, which can properly be regarded as liabilities of the Licensor will also form part of the consideration for the supply of the Development Licence.

Question 2

1. Will you make a taxable supply of Development Works to Entity A?

2. If the answer to (1) is yes, will the GST inclusive market value of the consideration be equal to:

3. Will you be able to issue an invoice for the Development Works and attribute its GST liability to the tax period in which practical completion and independent certification of the Development Works occurs (being the same tax period in which Entity A makes the Sale Offers)?

Section 9-5 provides that you make a taxable supply if:

In your case, the supply is made in the course of your enterprise, is connected with the indirect tax zone and you are registered for GST. Further, the supply of Development Works will not be GST-free or input taxed.

Finally, we must examine the nature of any consideration you receive for the supply of Development Works to Entity A.

Many transactions involve parties entering into multiple obligations. The question arises as to whether those obligations are consideration (or additional consideration) for a taxable supply.

Paragraph 12 of GSTR 2001/6 states that a 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind form, such as:

The definition of a taxable supply requires, among other things, that you make a supply for consideration. There needs to be a supply, a payment and the necessary relationship between the supply and the payment. Where one party makes a monetary payment to another, something of economic value is provided. The question is whether there is a sufficient nexus between the supply and the payment as consideration.

The same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply.

Paragraphs 80 to 81 of GSTR 2001/6 provide that the test for determining whether a payment is consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. 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 [emphasis added].

Paragraphs 33-37 of Goods and Services Tax Ruling Goods and services tax: development lease arrangements with government agencies (GSTR 2015/2) consider the respective supplies between the Developer and a government agency. These paragraphs state:

In your case, Clause X of the Development Licence details the Development Works to be undertaken by you. Clause X of the Development Licence outlines the obligations of Entity A pursuant to Clause X and states:

Sale offer

Further Clause X provides that on acceptance of a Sale Offer, you must give Entity A an Acceptance Notice and a Sale Contract for each sale lot. The Sale Offer may be accepted in respect of some or all of the Offer Lots.

For the sake of completeness, we note that Clause X of the Development Licence stipulates that the following are taxable supplies:

The grant of the Sale Offers by Entity A is consideration for the Development Works undertaken by you on the Development lots. That is, the consideration (being the Sale Offers) is 'in connection with', 'in response to' or 'for the inducement of' the supply of the Development Works and are conditional on you completing specified development works. You are not entitled to the grant of the Sale Offer until the Independent Certifier has issued a Notice signifying that that all of the Development Works in respect of the relevant Portion of land have achieved Practical Completion.

Consequently, the supply of Development Works by you to Entity A is a taxable supply as all the requirements of section 9-5 are met.

Valuation of non-monetary consideration provided for supplies made under the development licence:

Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply.

Where the parties to a development lease arrangement are dealing with each other at arm's length, the Commissioner considers that the things exchanged between the parties are of equal GST inclusive market value. Therefore, in the context of a development lease arrangement between a government agency and a developer, the parties can use a reasonable valuation method as agreed between them to determine the GST-inclusive market value of any non-monetary consideration for supplies arising in the context of a development lease arrangement.

Paragraph 70 of GSTR 2015/2 states:

In your case, you have indicated that it is likely that you will use the method outlined in paragraph 70 of GSTR 2015/2 to determine the GST-inclusive market value of the supply of the development services by you. This is consistent with the Commissioner's view.

Alternatively, you have stated that the GST inclusive value will be calculated based on the difference between the market value of the Offer Lots at the time the Sale Offers are made and the aggregate purchase price payable under the Sale Contracts. The Commissioner considers that this is also a reasonable valuation method.

Attribution

In the context of a development lease arrangement, attribution of a GST liability or a corresponding input tax credit entitlement is required in the tax period in which:

whichever is earlier.

Paragraphs 93 and 94 of GSTR 2015/2 consider the attribution of the Developer's GST liability for its taxable supply of development services. These paragraphs state:

Paragraph 106 of GSTR 2015/2 states further:

In your case, Entity A, pursuant to Clause X of the Development Licence, will make an offer to you, to sell the Offer Lots within five Business Days after the date of a Final IC Notice (being the notice given by the Independent Certifier under clause 11.6(c)(II) which signifies that all of the Development Works in respect of the relevant separable portion have achieved Practical Completion) being issued. No non-monetary consideration (in the form of the Sale Offers by Entity A) for the supply of the development services is received by you prior to practical completion of the development.

Consequently, you will attribute the taxable supply of Development Services in the period in which the Sale Offers are made by Entity A.

Question 3

The term 'creditable acquisition' is defined in section 11-5 as follows:

You make a creditable acquisition if:

'Creditable purpose' is defined in section 11-15 as follows:

In your case, providing the supply made by Entity A to you is a taxable supply, requirements (b) and (d) will be met.

Further, as explained in Clause 37 of GSTR 2015/2, the supply of development services by you is consideration for the supply or grant of a call option by Entity A. Consequently, requirement (c) is met.

The only other major determinant is whether the acquisition from Entity A is for a creditable purpose.

Pursuant to the Objects of Entity B, as detailed in the Constitution of the company, you will, on acquiring each Sale Lot following the acceptance of a Sale Offer from Entity A, construct residential accommodation thereon which you will use to supply residential accommodation for consideration that is less than 75% of the GST inclusive market value of the supply.

Section 38-250 states that a supply is GST-free if:

The term endorsed charity is defined under subsection 176-1(1) as follows:

You are an "ACNC-registered charity" as defined in section 195-1 and has been endorsed by the Commissioner as a charity under section 176-1. Therefore, its supplies of accommodation will be GST-free under section 38-250.

Consequently, to the extent that you make GST-free supplies, the acquisition of the Sale Offers are for a creditable purpose and will be a creditable acquisition.

As outlined in Question 2 above, in the context of a development lease arrangement between a government agency and a developer, the parties can use a reasonable valuation method as agreed between them to determine the GST-inclusive market value of any non-monetary consideration for supplies arising in the context of a development lease arrangement. As the parties are transacting at arm's length, the GST-inclusive market value of the non-monetary consideration for each respective supply (by Entity A of the Sale Offers and you of Development Services) will be of equal value.

Question 4

Will you make a creditable acquisition of goods and services from the Approved Builder?

Section 11-20 states that you are entitled to the input tax credit for any creditable acquisition that you make.

As outlined in Question 3, the term 'creditable acquisition' is defined in section 11-5.

The Constitution of Entity B provides that one of its primary objectives is to assist in the alleviation of poverty through the provision of social and affordable housing.

In order to achieve this objective, the activities of Entity B include:

We accept that you conduct an enterprise which includes the above objectives.

Consequently, where the Builder makes a taxable supply to you, we consider that the acquisition of the Development Services is a creditable acquisition as the building services will be acquired for a creditable purpose, you will be liable to provide consideration for the supply and you are registered for GST.

Question 5

As outlined in Question 3 the term 'creditable acquisition' is defined in section 11-5.

In your case, provided the supply made by Entity A to you is a taxable supply, requirements (b) and (d) will be met.

Clause X of the Development Licence outlines the Sale Contract Terms. In particular, Clause X states that:

Section 9-17 deals with certain payments and other things not consideration. It states:

As the Sale Offer made by Entity A to you is a right granted by Entity A to you, the consideration, in this case, for the supply of the Offer Lot on the exercise of the Offer is limited to $X, being the additional consideration paid by you. Consequently, item (c) is satisfied.

Clause X of the Agreement for Licence outlines that an appropriate cash adjustment may need to be made between the parties and states:

Where you are required to make a cash adjustment payment, the payment will also be additional consideration for the supply of the Lot.

The only other major determinant is whether the acquisition from Entity A is for a creditable purpose.

As outlined in Question 4 above, your supply of accommodation will be GST-free pursuant to section 38-250.

Consequently, to the extent that you make GST-free supplies, the acquisition of the Offer Lot from Entity A will be for a creditable acquisition.

Question 6

Upon you making a future supply of a Sale Lot to a third party:

(a) Will you make an input taxed supply under section 40-65?

(b) Will a Sale Lot be "new residential premises" under section 40-75?

(c) Will Division 129 apply to you when the extent of creditable purpose is changed?

Under subsection 40-65(1), a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, subsection 40-65(2) states that the sale is not input taxed to the extent that the residential premises are:

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input taxed credit for anything that is acquired to make the supply.

The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation, or is intended to be, and is capable of being, occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation).

In your case, the units constructed will be residential premises. According to the facts, that make up the arrangement on which this private ruling is based, the premises are not commercial residential and they were not used for residential accommodation before 2 December 1998.

The term 'new residential premises' has the meaning given by section 40-75, which in part states:

40-75 Meaning of new residential premises

When premises are new residential premises

Paragraphs (b) and (c) have effect subject to paragraph (a).

Section 40-75 comprises further provisions which provide that certain supplies of residential premises are disregarded for the purposes of determining whether the premises have previously been sold as residential premises or the subject of a long term lease for the purposes of paragraph 40-75(1)(a).

Subsection 40-75(2B) of the GST Act

Subsection 40-75(2B) states:

The Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No. 9) Act 2012 (EM) outlines the intention of subsection 40-75(2B) at paragraph 6.26 of the EM which states:

Consequently, where the requirements of subsection 40-75(2B) are met, a supply (the wholesale supply) of newly constructed residential premises will be disregarded for the purposes of applying paragraph 40-75(1)(a) and a subsequent supply of those premises is a supply of new residential premises.

Firstly, paragraph 40-75(2B)(a) requires the premises from which the residential premises were created to have earlier been supplied to the recipient of the wholesale supply, or their associates. In this case, paragraph 40-75(2B)(a) is satisfied because the land from which the residential premises were created will have been previously supplied to you under a Development Licence.

Secondly, paragraph 40-75(2B)(b) requires that an arrangement (including an agreement) be made between the supplier of the earlier supply, or their associate, and the recipient of that earlier supply, or their associate. Here, paragraph 40-75(2B)(b) is satisfied as there is an arrangement between the supplier of the earlier supply (Entity A which granted the Development Licence) and the recipient of that earlier supply (you).

Lastly, paragraph 40-75(2B)(c) requires that under the arrangement the wholesale supply of the residential premises is conditional upon specified building or renovation work being undertaken by the recipient of the earlier supply (in this case, you). The wholesale supply in this case is the sale of the Offer Lots by Entity A to you.

The arrangement between you and Entity A is contained in the Development Licence entered into between the parties. This document sets out the requirements for this development including the specified building works (Annexure A to the Development Licence). The terms of the arrangement provide and are the source of conditions that, when satisfied, give rise to the grant of freehold titles on acceptance of a Sale Offer by you from Entity A.

The Development Works must be carried out in accordance with the requirements of all relevant Laws and Government Agencies and the relevant Development Documents agreed between the Licensor and Licensee under the Agreement for Licence and attached to Annexure A of the Development Licence.

The Sale Offers, which are a preamble to the ultimate purchase of the individual Offer Lots (the wholesale supply), are conditional on the specified development works being undertaken by you.

Clause X of the Development Licence deals with Irrevocable Offers and states:

Sale offer

The objective of Entity B is the provision of social and affordable housing. To achieve this objective, you will purchase a number of residential lots, the outcome of which is dependent on the completion of the development works and receiving the Offers. Consequently, the wholesale supply of the residential lots by Entity A to you is disregarded as a sale or supply for the purposes of applying paragraph 40-75(1)(a) and the supply of a Developed Lots by you to a purchaser will be a taxable supply.

A Division 129 adjustment will not be required as the extent of creditable purpose has not changed.

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