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This edited version has been archived due to the length of time since original publication.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: 1012988673396

Date of advice: 23 March 2016

Ruling

Subject: Goods and services tax (GST) and property

Question 1

Question 2

Yes

Question 3

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

Yes

Question 4

Yes

Yes

Question 5

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

No

Yes

N/A

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 a Development Agreement with Entity A.

Pursuant to the Development Agreement, the Approved Builder and Entity A will enter into the Development Licence.

Pursuant to the Development Agreement:

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

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 Goods and Services Tax Ruling GSTR 2001/6, Goods and services tax: non-monetary consideration (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 under development lease/licence arrangements. While you have not entered into a licence with government agency, the principles in this ruling as they relate to supplies of development services in exchange for interests in real property are applicable to your circumstances. These paragraphs state:

In your case, Clause X of the Development Agreement details the Development Works to be undertaken by you. Clause X of the Development Agreement 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 Agreement 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 transaction 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. 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 and reasonable in your circumstances.

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 this transaction, 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 Agreement, 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 2

1. Will you make a creditable acquisition of the Sale Offers?

2. If the answer to (1) is yes, will the consideration be limited to the Development Works?

3. Will the market value of the Development Services be equal to the market value of the Sale Offers?

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.

You advise that you do not intend at the time of acquisition to on-sell the residential premises on the Sale Lots. In the future you may need to sell some of the residential premises to meet financial obligations and these sales would be input taxed (see Question 6 below). However it is not your intention, at the time of acquiring the Sale Offers, to do so. Therefore, at the time of acquisition, the acquisition of the Sale Offers do not relate to making input taxed supplies.

As outlined in Question 1 above, 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 under the 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 3

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 2, 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 purpose as the building services will be acquired in the course or furtherance of your enterprise and do not relate to making input taxed supplies nor are for a private or domestic purpose. The acquisition of the building services is a creditable acquisition as for a creditable purpose, you will be liable to provide consideration for the supply and you are registered for GST.

Question 4

1. Will you make creditable acquisition of the Sale Lots from Entity A?

2. Will the consideration be limited to the nominal purchase price payable under the Sale Contracts?

As outlined in Question 2 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 3 above, your supply of accommodation will be GST-free pursuant to section 38-250.

As outlined in Question 3 above, you will use the Sale Lots for the creditable purpose of making GST-free supplies of accommodation. Although it is a possibility, you have confirmed that you have no intention to sell the Lots after you acquire them and you are not intending to make any input taxed supplies of residential premises.

Therefore, your acquisitions did not meet the negative limb of paragraph 11-15(2)(a) and accordingly were regarded as being made for a wholly creditable purpose. .

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 5

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

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).

Upon practical completion and independent certification of the Development Works, Entity A will offer to sell the Offer Lots to you. If you accept a Sale Offer and pay the nominal purchase price of $X, Entity A will transfer the Sale Lot to you in accordance with the Sale Contract. This will be a sale of the residential premises.

When you make a supply of the Sale Lot, it will have previously been sold as residential premises. Therefore your future supply of the Sale Lot will not be a supply of new residential premises. Your supply will be input taxed.

Under Division 129 of the GST Act, you are required to monitor the extent to which your acquisition continues to be applied to a creditable purpose. Where there is a change in the extent to which you have applied a thing to a creditable purpose, such as selling the premises (input taxed supplies), you may be required to make an adjustment.

If after acquisition of the Sale Offers and the Sale Lots, you sell, one, some or all, of the residential premises, this will be a change in the extent to which you have applied the Sale Offers and the Sale Lots for a creditable purpose.

In relation to the acquisition of the Sale Lots, as they will be for $X each, no adjustments can arise under Division 129 for these acquisitions as they are below $1,000 (subsection 129-10(2)).

However, in relation to the acquisition of the Sale Offers, the GST exclusive value will exceed $1,000 and it is necessary to determine if an adjustment arises. An adjustment arises where the intended or former application of a thing is different to the actual application of the thing.

In determining the 'actual application of the thing' for the purposes of section 129-40 it is necessary to look at the extent to which the residential premises are applied for a creditable purpose and therefore applied, or in other words, used, in relation to making input taxed supplies.

'Creditable purpose' for the purposes of Division 129 is defined in section 129-50 in similar terms to section 11-15 and states that:

We consider that the relationship can be direct or indirect as long as it is material or sufficient, as with section 11-15. While a call option to purchase residential premises is exercised before the acquisition of the residential premises themselves, in determining whether the acquisition of the call option is for a creditable purpose, we consider that it is necessary to look to the use of the residential premises given that the residential premises are the subject of the option. It is not sufficient to look only to the character of the supply upon exercising the option (in this case, the acquisition of new residential premises as a taxable supply). To the extent that the residential premises are applied to make input taxed supplies, the acquisition of the call option will relate to making input taxed supplies and will not be for a creditable purpose. This approach applies equally in Division 11 and Division 129 in relation to options.

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