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Edited version of your written advice
Authorisation Number: 1012937728746
Disclaimer
You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.
Date of advice: 18 January 2016
Ruling
Subject: GST and Compensation payments
Question
Are you, as a landowner making a taxable supply under a Compensation Agreement with the X in relation to a X lease or a X claim?
Answer
Yes, you are making a taxable supply as a landowner in relation to a X lease or a X claim.
This ruling applies for the following periods:
Not applicable
The scheme commences on:
Not applicable
Relevant facts and circumstances
• You (landowners) carry on an enterprise of leasing land for X and registered for goods and services tax (GST).
• Landowners understand that when an X applies for a X lease or claim to the relevant Department, they are required to have a compensation agreement with the landowners.
• Landowners grant the X the right to access the property in order to carry on the X activities.
• The relevant Department has advised the landowners and the X that there is no GST on compensation agreements.
• Under the compensation agreement the landowners are by virtue of the provisions of the Act entitled to compensation with respect to:
• deprivation of possession of the surface of the land of the owner;
• diminution of the value of the land of the owner or any improvements thereon;
• diminution of the use made or which may be made of the land of the owner or any improvements thereon;
• severance of any part of the land from other parts thereof or from other land of the owner;
• any surface rights of access;
• all loss or expense that arises;
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.
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; and the supply is made in the course or furtherance of an enterprise that you carry on; and 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.
Section 9-10 of the GST Act refers to the meaning of supply and provides that a supply is any form of supply whatsoever. A supply includes any of these:
(a) a supply of goods;
(b) ………..
(c) a supply of services;
(d) a grant, assignment or surrender of real property;
(e) a creation, grant, transfer, assignment or surrender of any right;
(f) ……………..
(g) an entry into or lease from an obligation:
(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation.
(h) any combination of any 2 or more of the matters referred to in (a) to (g).
In this case, the landowners make a supply to the X of the right to enter into their land and carry out the X activities. Under paragraph 9-10(2)(e) of the GST Act, the grant of this right by the landowners to the X is a supply from the landowners allowing the X to enter their property for X activities. The payments made by the X to the landowners for the compensable effects have a direct nexus with the grant of this right. Therefore, the compensation payments made by the X to the landowners constitute the consideration for the supply made by the landowners. Accordingly, paragraph 9-5(a) of the GST Act is satisfied.
Taxable supply
It is necessary to consider whether the supply of right made by the landowners to use the land by the X satisfy all of the requirements of section 9-5 of the GST Act. As explained above, the X will make consideration for the supply made by the landowners; the supply of right to use the land is made in the course or furtherance of the enterprise of leasing land; the supply is connected with Australia and the landowners are registered for GST.
The supply of right to enter the landowners' land and carry out the X activities is not a GST-free or an input taxed supply under any provision of the GST Act.
Therefore, the supply of right by the landowners to the X satisfies all the requirement of a taxable supply under section 9-5 of the GST Act and subject to GST.
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