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Edited version of your written advice

Authorisation Number: 1051274043298

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 4 September 2017

Ruling

Subject: GST and development services

Question 1

Did Entity A make a taxable supply of Development Services to the government agency in relation to the development of real property (the Land) and in accordance with the obligations set out in the Transaction Documents for the Project?

Answer

Yes.

Question 2

Are the Development Services provided by Entity A to the government agency non-monetary consideration for Entity A’s acquisition of the Land from the government agency?

Answer

Yes.

Relevant facts and circumstances

Entity A is an Australian Private Company that is registered for GST.

Entity A has entered into a commercial arrangement with a government agency (Entity B for the acquisition and development of land (the Land) by constructing residential units on the Land.

The arrangement is governed by the following documents (the Transaction Documents):

Entity B entered into the Contract to grant, or procure the grant of the Lease over the Land to Entity A, for the purchase price (the Purchase Price).

The PDA is Annexure C of the Contract and was entered into on the same date as the Contract. Its purpose was to set out the obligations of Entity A with respect to developing the Land.

Completion of the Contract occurred (Completion) and a Lease was granted.

The Transaction Documents include a number of mechanisms to ensure that Entity A satisfactorily completes certain development works within the agreed timeframe. The relevant clauses in these documents are outlined below.

Under the Contract:

Under the PDA:

Under the Lease:

The works that Entity A is contractually obligated to provide to Entity B under the Transaction Documents are collectively referred to as Development Services.

Once the Compliance Certificate was received in respect of the development, Entity A applied for and was issued certificates of title for each unit.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) 1999 Section 9-10

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

A New Tax System (Goods and Services Tax) 1999 Division 82.

Reasons for decision

In this reasoning, please note:

Question 1

Entity A was granted a Lease over the Land for the purpose which includes residential use. Once the Compliance Certificate was received in respect of the development, Entity A applied for and received certificates of title for each unit.

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

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Under section 9-10 a supply is any form of supply whatsoever and includes amongst others, a supply of goods, a supply of services and an entry into an obligation to do anything.

Pursuant to the Transaction Documents, Entity A will make a supply of Development Services to Entity B.

The supply of Development Services is made in the course of Entity A’s enterprise, in Australia and Entity A is registered for GST. Further the supply of the development services will not be GST-free or input taxed.

We must examine the nature of any consideration Entity A received for its supply of development services to Entity B.

Section 9-15 provides that consideration includes any payment in connection with a supply of anything and any payment in response to or for the inducement of a supply of anything.

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration explains how the GST Act applies if part or all of the consideration for a supply is not expressed as an amount of money (that is, if it is non-monetary consideration).

Paragraph 12 of GSTR 2001/6 provides 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 47 of GSTR 2001/6 provides that in order for a supply to be a supply for consideration:

Paragraph 48 provides that the same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply.

Goods and Services Tax Ruling GSTR 2015/2 Goods and services tax: development lease arrangements with government agencies considers the respective supplies between the developer and a government agency under development lease/licence arrangements. While you have not entered into a licence with the 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.

Paragraphs 33 to 37 of GSTR 2015/2 discuss the circumstances where a supply of development services by the developer is in turn consideration for the supply of the land by the government agency. In summary:

Further, paragraphs 56 to 60 of GSTR 2015/2 discuss the GST position where works undertaken on the land are not transferred to, or retained by, the developer. In summary:

The Transaction Documents support that there is a strong nexus between the Development Services supplied by Entity A and the supply of the Land.

The Lease was granted to Entity A for a specified purpose including the construction of residential dwellings. The Lease also outlines associated works which must be completed and maintained.

Under the Contract, Entity A agreed to Entity B retaining and using (if required) the ‘Security’ payable by Entity A to Entity B, for the performance by Entity A of its obligations under the Contract and the PDA. The Security would be released upon completion by Entity A of its obligations under the PDA. In addition to the Security, Entity A charges its interest in the Land as Security for the performance of its obligations under the Contract and PDA.

Entity A was prohibited from selling or assigning any interest in the Lease or Land to any person before the Release Date.

Once the Compliance Certificate was received in respect of the development, Entity A applied to Entity B for the title.

Based on the analysis above, the supply of the Land to Entity A is consideration for Entity A’s supply of Development Services.

Division 82 is also not applicable in this case.

Consequently, Entity A makes a taxable supply of Development Services to Entity B in relation to the development of the Land.

Question 2

Subsection 9-15(1) provides that consideration includes:

GSTR 2001/6 explains how the GST Act applies if part or all of the consideration for a supply is not expressed as an amount of money (that is, if it is non-monetary consideration).

It is noted in paragraph 15 of GSTR 2001/6 that many transactions involve parties entering into multiple obligations and the question arises as to whether those obligations are consideration (or additional consideration) for a taxable supply.

In this case the obligations between Entity A and Entity B are set out in the Transaction Documents which include a number of mechanisms to ensure that Entity A satisfactorily completes certain development works within the agreed timeframe for the Land.

Paragraph 47 of GSTR 2001/6 provides that in order for a supply to be a supply for consideration:

Paragraph 48 provides that the same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply.

Paragraph 70 of GSTR 2001/6 refers to the high court decision in Berry v. FC of T (1953) 89 CLR 653 and the meaning given to the term ‘in connection with’, in particular, that consideration will be in connection with property where:

It is further stated in paragraph 81 of GSTR 2001/6 that:

In question one, we have referenced paragraphs 33 to 37 and 56 to 60 of GSTR 2015/2 which discuss supplies of development services in exchange for interests in real property and where works undertaken on the land are not transferred to, or retained by, the developer.

In this case, there is a direct link between both the monetary and non-monetary consideration provided by Entity A and the supply of the Land. The monetary payment and the Development Services have a substantial relationship, in a practical business sense to the property. The Development Services also have economic value and independent identity.

This view is supported by the Transaction Documents which underpin the arrangement.

Pursuant to the Lease, Entity A was obligated to complete an ‘approved development’. Entity A was also to provide and thereafter maintain (where required) the various associated works.

If the approved development or associated works are not completed within the period specified, Entity B may terminate the Lease.

Pursuant to the Contract, Entity A agreed to Entity B retaining and using (if required) ‘Security’ payable by Entity A for the performance by Entity A of its obligations under the Contract and the PDA. Entity A also acknowledged and consented to Entity B registering a charge or caveat over the Lease.

Pursuant to the PDA entered concurrently with the Contract, Entity A must design and construct all buildings on the Land, consistent with the Development Guidelines (annexed to the PDA) and the terms and conditions contained in the PDA. Entity A must also consult with Entity B and seek endorsement from Entity B for the Initial Development Application.

It was only after Entity A met its obligations under the Transaction Documents that it could obtain the certificates of title for each unit.

Consequently, there is a sufficient nexus between the Development Services provided by Entity A to Entity B and the supply of the Land to Entity A. Accordingly, Entity A’s supply of development services is additional non-monetary consideration for the Entity B’s supply of the Land.

This ruling does not address the value of the non-monetary consideration as it will depend on the factual matrix of the whole arrangement.


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