Edited version of private advice

Authorisation Number: 1051796463743

Date of advice: 11 February 2021

Ruling

Subject: GST and property

Question 1

Will the sale of the subdivided/reconfigured traded land and compulsorily acquired land by Entity A, be a taxable supply pursuant tosection 9-5 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act), for which GST can be calculated using the margin scheme pursuant to Division 75 of the GST Act?

Answer

Yes, in part.

Where a Landownerdoes not pay a contribution as required under clause X of the Agreement, Entity A will compulsorily acquire part or all of their land pursuant to section X of the relevant Act. In this case, the Landowner will not make a supply to Entity A. In respect of lots which fall into this category, Entity A is not ineligible to use the margin scheme when it sells the compulsorily acquired lots to third parties.

However, where a Landowner transfers land to Entity A in lieu of a cash contribution, we consider that the Landowner has taken some action in order to effect the transfer of land and is therefore making a supply of land to Entity A.

Question 2

For the purposes of subsection 75-10(2) of the GST Act, will the consideration for the acquisition of the traded land and compulsorily acquired land under the arrangement, include the Landowner's Contribution and the Surplus Payment (arising pursuant to the sale of a traded/compulsorily acquired Lot to a third party)?

Answer

Yes.

The consideration for Entity A's acquisition of a lot of traded land or a lot of compulsorily acquired land is in each case the Landowner's Contribution ('shared costs' and 'individual costs') plus the Surplus Payment made to the Landowner of the lot (calculated in accordance with the formula in subclause X of the Development Plan).

Relevant facts and circumstances

Entity A is a statutory state-owned corporation.

The Land Area is a precinct of various lots of land.

The lots are referred to as paper subdivisions as they comprise of land lots that have recognition on paper only. Paper subdivisions originated in the late 1800s and 1900s.

Although the lots are zoned low density residential, the configuration of the lots has resulted in the lots not being suitable for this type of use. Additionally, the configuration of the lots has resulted in a lack of infrastructure such as roads, drainage, water, sewerage and power.

Entity A has been appointed as the 'relevant authority' to re-subdivide and provide services to the area, pursuant to the relevant Act.

Development Plan

In light of its appointment, Entity A has prepared a Development Plan for the area pursuant to the relevant Act. The owners of lots within the Land Area (Landowners) consented to the Development Plan in accordance with the relevant Act.

Under the Development Plan, Entity A has been and will carry out subdivision and development works in Precinct X, Stages X to X of the Land Area.

Each Landowner is required to make a Landowner's Contribution towards the cost of the subdivision, development works and Development Plan costs (Subdivision Costs). The contribution is calculated and described in the Development Plan.

Each Landowner may enter into a Voluntary Contributions Agreement (VCA) with Entity A to contribute to the Subdivision Costs. The VCA is entered into prior to works being undertaken on the land and subdivision by Entity A. Entity A forward funds the works. The Landowner becomes a debtor of Entity A for the amount of the Subdivision Costs ('shared costs' and 'individual costs' as outlined below) to be incurred on the land.

Under the VCA, a Landowner may choose to:

(a)  voluntarily trade their land to Entity A, in whole or in part (Traded Land), or

(b)  make a monetary payment of the contribution, or

(c)   a combination of both.

All Landowners have entered into a VCA.

Where a Landowner chooses to voluntarily trade all or part of their land to Entity A, the trade will be effected by way of compulsory acquisition by agreement under the relevant Act.

If a Landowner does not pay a contribution as agreed under clause X of the VCA, Entity A has the power to compulsorily acquire part or all of their land in order to satisfy the Landowner's Contribution. Such a compulsory acquisition will be effected pursuant to the relevant Act.

Entity A also has the power to compulsorily acquire land from Landowners for the purposes of constructing roads. Such a compulsory acquisition will be effected pursuant to the relevant Act.

Entity A compulsorily acquires the land (after subdivision) in exchange for the extinguishment of the debt owed by the Landowner and Entity A becomes the owner of the land.

Entity A will then sell the subdivided lots (as owner), that the Landowners have elected to trade to Entity A or which have been compulsorily acquired because a Landowner has failed to make the required contribution under a VCA, to the public.

The value of the debt previously extinguished is retained by Entity A and any surplus proceeds of sale that remain (over and above costs incurred by Entity A for the subdivision, development works and sale of the lot) will be returned to the relevant Landowner (Surplus Payment as outlined below).

Entity A has the power to compulsorily acquire the Landowners land under the relevant Act.

Development to date

Entity A has commenced the development works and subdivision in respect of a part of the land.

Some Landowners have elected to trade part of their land to Entity A under the VCA.

The first stage of the development has been released for sale. The plan of subdivision for that stage was lodged on DDXXYYYY and registered on DDXXYYYY. The necessary compulsory acquisition Gazette Notice under the relevant Act was published on DDXXYYYY and settlement of the first contract occurred on DDXXYYYY.

Development of Stages X and X are ongoing with some parts of these stages having also been released for sale. Settlement of the sale of each of these subdivided lots is conditional on registration of the plan of subdivision and Entity A becoming the registered proprietor of the relevant Lot. Entity A will be acquiring the relevant Traded Land under the VCA process prior to settlement of each

Break-up of Landowner's Contribution

The Contribution Notice Amount is comprised of 'individual costs' and 'shared costs'.

'Individual costs' are those costs that each Landowner is individually responsible for. For example, the removal of asbestos from their land.

'Shared costs' are costs incurred in relation to the project and are not attributable or specific to any one lot. The shared costs in their entirety are borne proportionately by all the Landowners (and not by Entity A). Examples of shared costs include earthworks and road construction costs. This component of the contribution was calculated and fixed when the Contribution Notices were issued in YYYY.

The shared costs together with the individual costs, is the debt owed by the Landowners. The works associated with these costs, is the compensation for the acquisition of the land by Entity A to which the Landowner is entitled under the Development Plan.

Where the Landowner elects to satisfy their contribution by trading land, the VCA specifically defines the Traded Land and the 'shared costs' component of the contribution is then fully satisfied despite the ultimate sale price for the Traded Land. If the sale price of the Traded Land is ultimately insufficient to pay the actual 'shared costs', Entity A is responsible for the shortfall. However, any surplus is returned to the Landowners (Surplus Payment) in accordance with the Development Plan.

The 'individual costs' component of the Landowner's Contribution is not fixed and is based on actual costs. However, the figures quoted in the Contribution Notice are based on an estimate. Where the actual costs exceed the estimate, the Development Plan and the VCA allow Entity A to issue a Landowner a notice of additional individual costs.

If the sale price of the Traded Land is insufficient to pay the actual 'individual costs', Entity A can recover the shortfall from the Landowner as a debt.

Election to Trade Land

In general figures, Landowners that elected to satisfy their Landowner's Contribution in full by trading land traded around half of their re-configured lots in the subdivision. They retained the other re-configured lots as non-Traded Land.

Reconfiguration of lots with no change in ownership

One of the key problems with historical paper subdivision is the shape of the lots - they are very long and very narrow. This makes them difficult to develop under modern planning controls. As a result, paper subdivision land mostly remains unused.

The subdivision of the land is, in general terms, a reconfiguration of the internal boundaries of each Landowner's land to reflect current norms. The only change in ownership occurs where land is dedicated to the relevant road authority (in this case, the relevant Council) as public road or for other infrastructure under relevant legislation (such as drainage or public reserves).

No Landowner acquires new or different land as a result of the subdivision.

The subdivision configuration does not change depending on whether a Landowner is making a monetary contribution or is trading land.

Project chronology

The VCA does not set out a specific timeline for the compulsory acquisition process. However, from a practical perspective:

•         the civil works (roads, sewer etc.) need to be completed before the subdivision can be registered, and

•         the subdivision needs to be registered to define the whole lots comprising the Traded Land that can then be acquired.

The following is a simplified chronology of the development.

Step 1: Entity A obtains development approval for the development.

Step 2: Entity A completes the civil works relating to the subdivision (roads, sewer etc.).

Step 3: Entity A procures the registration of the subdivision with the relevant entity, which creates the Traded Lots and the non-Traded Lots and dedicates any new roads.

Step 4: Landowners of non-Traded Lots are free to deal with the non-Traded Lots how they wish.

Step 5: For Traded Land only, Entity A compulsorily acquires the Traded Lots.

Step 6: For Traded Land only, Entity A completes the sale of the Traded Lots.

Step 7: Entity A calculates and distributes any surplus. This step occurs after completion of the Development Plan.

Further information

(a)  The Traded Land is identified in the VCA (this applies whether the Landowner is only trading land or is doing a combination of trading land and making a monetary contribution).

The method the Landowner uses to satisfy the Landowner's Contribution does not change any of the rights and obligations of the Landowner (other than the actual compulsory acquisition of the Traded Land).

A Landowner who chooses to make a monetary payment will not acquire title to a new lot. The Landowner will continue to own its existing land (minus any land dedicated for roads) but just reconfigured to allow development under modern planning controls.

(b)  The development works will be undertaken on the land held by the Landowners prior to

the transfer of title to Entity A.

Entity A obtains expert valuation advice to assist in determining the current market value of Traded Land at the point of sale. The sale price of the Traded Land is independent of the value of the contribution.

(c)   For the purposes of the margin scheme, the only payment made to the Landowners by Entity A, is the payment of any surplus calculated in accordance with clause X of the Development Plan (Surplus Payment). Entity A proposes to calculate the base cost for the margin scheme, by reference to the Contribution Notice Amount due by the Landowner and satisfied by way of Traded Land and the associated Surplus Payment made to the Landowner.

Further Information

(a)  The Landowner's Contribution amount will be included in calculating the margin for the purposes of the margin scheme as it reflects the amount of the debt owed by the Landowners or the value of services provided by Entity A.

(b)  The works that are being undertaken by Entity A are defined as 'subdivision works' in the VCA and are identified in the Development Plan at clause X to include:

(c)   Works for the purpose of roads.

(d)  Works for the purpose of water supply.

(e)  Works for the purpose of sewerage services.

(f)    Works for the purpose of drainage.

(g)  Works for the purpose of electricity supply.

(h)  Works for the purpose of gas supply.

(i)    Works for purpose of telecommunications.

(j)    Works for the purpose of site remediation.

(k)   Works for the purpose of demolition.

(l)    Works for the purposes of, or ancillary to, the above works.

Traded Land vs Compulsory Acquisition

Whilst the terms used in the VCA include 'land trade' and 'traded land', the land acquisitions are undertaken within the powers of section X of the relevant Act such that the land is compulsorily acquired by Entity A.

Where parties consent to trading their land as settlement of their debt, the land trade remains subject to the compulsorily acquisition powers and occurs pursuant to section X of the relevant Act as recognised under the VCA.

Further information

The project has been structured as a zero-sum arrangement for Entity A as it ultimately does not bear any cost or receive any profit. There is a potential exception to the zero-sum arrangement as the shared costs component of the contribution is calculated and was fixed when the contributions were issued in YYYY. Entity A bears risk if:

(a)  the final actual shared costs that Entity A forward funds exceeds the Landowner's contributions towards shard costs, or

(b)  the sale of the traded land provides insufficient revenue to cover the Landowner's contributions towards shared costs.

In these cases, Entity would make a loss without recourse to the Landowner. Bearing this risk and any associated loss is part of the performance of functions by the relevant authority and accordingly, part of the compensation the Landowner is entitled to under clause X of the Development Plan.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 75

Reasons for decision

Question 1

Section 9-40 provides that you must pay the GST payable on any taxable supply that you make.

Pursuant to section 9-5, you make a taxable supply if:

•         you make the supply for consideration

•         the supply is made in the course or furtherance of on enterprise that you carry on

•         the supply is connected with the indirect tax zone (Australia), and

•         you are registered or required to be registered for GST.

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

The Arrangement

Entity A has prepared a Development Plan for the Land Area which comprises approximately X lots of land.

Although the lots are zoned low density residential, the configuration of the lots has resulted in the lots not being suitable for this type of use.

Entity A has been appointed as the 'relevant authority' to subdivide and provide services to the area, pursuant to the relevant Act.

Entity A has, pursuant to its mandate, prepared a Development Plan for the area and the affected Landowners have consented in accordance with the relevant Act.

Each owner of a lot within the area is required to make a Landowner's Contribution towards the cost of the subdivision and development works and the Development Plan costs (Subdivision Costs).

Each Landowner has entered into a Voluntary Contributions Agreement (VCA) with Entity A. Under the VCA, a Landowner may choose to:

(a)  voluntarily trade their land to Entity A, in whole or in part (traded land), or

(b)  make a monetary payment of the contribution, or

(c)   a combination of both.

If a Landowner chooses to voluntarily trade all or part of their land to Entity A, the transfer of the land will be effected by way of compulsory acquisition by agreement under the relevant Act.

If a Landowner does not pay a contribution, under clause X of the VCA, Entity A has the power to compulsorily acquire part or all of their land in order to undertake the subdivision and development works, to satisfy the Landowner's Contribution. Such a compulsory acquisition will be effected pursuant to the relevant Act.

Taxable Supply of Subdivided Lots

Once Entity A has completed the civil works relating to the subdivision (roads, sewer etc.) and obtained the registration of the subdivision with the relevant entity, which creates the Traded Lots and the non-Traded Lots (and dedicates any new roads), Entity A will acquire both the Traded Lots and compulsorily acquired lots (subdivided lots) and these lots will be sold to third parties.

The sale of the subdivided lots will be a taxable supply as Entity A will make a supply for consideration, in the course or furtherance of its enterprise activities, the supply of the lots will be in Australia and Entity A is registered for GST. Further, the supply of the lots will not be GST-free or input taxed.

If the sale price of the Land is ultimately insufficient to pay the actual 'shared costs', Entity A is responsible for the shortfall. However, any surplus calculated in accordance with clause X of the Development Plan is returned to the Landowners as a Surplus Payment.

Application of Margin Scheme

Subsection 75-5(1) provides that the margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by:

(a)  selling a freehold interest in land, or

(b)  selling a stratum unit, or

(c)   granting or selling a long-term lease

if you and the recipient of the supply have agreed in writing that the margin scheme is to apply.

However, subsection 75(2) provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme.

Subsection 75-5(3) lists the circumstances in which you acquire the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme. Relevantly, paragraph 75-5(3)(a) provides that a supply is ineligible for the margin scheme, if it is a taxable supply on which the GST was worked out without applying the margin scheme.

In this case, we must examine whether the Landowner's under the respective arrangements outlined below, have made a supply of land to Entity A for the purposes of paragraph (a) of the definition of taxable supply in section 9-5:

1.    Pursuant to a VCA, the Landowner trades all (or part) of their land to Entity A to satisfy their contribution obligations under the arrangement. Under this arrangement, the land is compulsorily acquired by agreement pursuant to section X of the relevant Act.

2.    The Landowner does not pay a contribution as required under clause X of the VCA resulting in the land being compulsorily acquired under the relevant Act.

The meaning of supply is given in section 9-10 and includes a supply of goods and the grant, assignment or surrender of real property.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies outlines a number of propositions for characterising and analysing supplies. Of particular relevance to your arrangement is Proposition 5 which states that 'to make a supply an entity must do something'. This means that an entity must take some action to make a supply.

Paragraph 72 of GSTR 2006/9 makes reference to Shaw v Director of Housing and State of Tasmania (No.2). In this case his Honour was of the view that GST only applies where the supplier makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply.

Paragraph 74 goes on to say:

However, Underwood J was of the view, with which the Commissioner also agrees, that an entity can still make a supply even if the supply is made under the compulsion of statute if the entity takes some action to cause a supply to occur...

The extinguishment of real property rights is discussed in this context in paragraphs 80 to 91 of GSTR 2006/9:

80. Various government authorities are empowered by legislation to acquire an interest in real property. Two common mechanisms employed by legislation are:

•       The vesting of the interest in the relevant government authority and extinguishing any previous interests in real property; and

•       The particular statute may allow the government authority to acquire real property by agreement.

81. An example of vesting is provided by section 20 of the Land Acquisition (Just Terms Compensation Act 1991 (NSW), where the required acquisition notices are gazetted, the relevant land is:

•       'vested in the authority of the State acquiring the land'; and

•       'freed and discharged from all estates, interests, trust, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land'.

The entity whose interest in the land is extinguished is compensated for the loss of the interest...

82. The effect of the gazettal notice is that the legal ownership of the land, described in the notice, is vested in the authority acquiring the land, and that the land becomes freed from any other interests. The entity's interest in the land whether legal or equitable, is extinguished. When land vests in an authority in consequence of a gazettal notice, it is necessary to examine the relevant facts and circumstances to determine whether or not the owner makes a supply of the land to the authority. In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority.

...

84. Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner.

...

Acquisition by agreement under a standard land contract

91. It may transpire that, before a compulsory acquisition under a statute is made, an owner and an authority enter into negotiations that result in the owner selling land under a standard land contract. The land in this case is not vested in the authority through the compulsory acquisition process. Instead, the interest in the land transfers as a result of settlement of the contract and execution of a transfer instrument. As such, the owner makes a supply of land to the authority.

Proposition 16, at paragraph 22 of GSTR 2006/9, provides that the total fact situation will determine the nature of the transaction, the entity that makes a supply and the recipient of the supply (refer to paragraphs 222 to 246 of GSTR 2006/9).

Paragraph 222 of GSTR 2006/9 states:

222.Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

Where a Landownerdoes not pay a contribution as required under clause X of the VCA, Entity A will compulsorily acquire part or all of their land pursuant to section X of the relevant Act. In this case, the Landowner will not make a supply to Entity A. In respect of Lots which fall into this category, Entity A is not ineligible to use the Margin Scheme when it sells the compulsorily acquired Lots to third parties.

However, where a Landowner transfers land to Entity A in lieu of a cash contribution, we consider that the Landowner has taken some action in order to effect the transfer of land and is therefore making a supply of land to Entity A.

The Landowner has, by entering into the VCA with Entity A and electing to trade either the whole of their land or a portion of their land to meet the contribution, made a conscious choice about how the contribution will be paid.

Clause X of the Development Plan states the relevant authority may at any time acquire any part of subdivision land for the planning purpose in accordance with this plan and the relevant Act by a voluntary contributions agreement, or compulsory process.

The purpose behind the transfer of the Land, by a Landowner, is the extinguishment of a debt to Entity A.

The arrangement entered into between the parties is not an agreement that the land should be acquired by Entity A for a specific, agreed consideration. Rather, it is a mechanism whereby a Landowner can extinguish a debt that will be due in the future to Entity A without having to pay a cash amount to Entity A.

Although the arrangement outlines that the land will be compulsorily acquired pursuant to section X of the relevant Act, this is the mechanism proposed by Entity A and it does not alter the GST outcome for the Landowner nor the nature of the supply made by the Landowner.

Consequently, Entity A's eligibility to use the margin scheme when making supplies to third parties will be dependant on whether or not a Landowner, who is registered for GST, supplies the land to Entity A. Where a Landowner makes a taxable supply to Entity A on which the GST was worked out without applying the margin scheme, Entity A's subsequent supply of that land will be a supply that is ineligible for the margin scheme, pursuant to paragraph 75-5(3)(a).

Question 2

The amount of GST on the taxable supply of Lots by Entity A

Section 75-10 discusses the amount of GST applicable to taxable supplies under the margin scheme.

75-10(1) If a *taxable supply of *real property is under the *margin scheme, the amount of GST on the supply is 1/11 of the *margin for the supply.

75-10(2) Subject to subsection (3) and section 75-11, the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.

In your case, we must determine whether Entity A has made an acquisition from Landowners of the traded/reconfigured lots and if so, we must determine the consideration for Entity A's acquisition of the traded/reconfigured lots pursuant to the arrangement.

Acquisition is defined in section 11-10 as 'any form of acquisition whatsoever' and includes 'an acceptance of a grant, assignment or surrender of real property'. The ordinary meaning of acquisition is broad and includes any acquisition of land.

Under the arrangement, Entity A will acquire title to the traded/reconfigured lots pursuant to the the relevant Act. This may be by agreement with the Landowner under a VCA (traded land) or by compulsory acquisition (if a Landowner does not pay the required monetary contribution). Entity A will therefore acquire the traded/reconfigured lots within the meaning of section 11-10.

Consideration

Consideration is defined in section 9-15(1) and includes:

(a)  any payment, or any act or forbearance, in connection with a supply of anything

(b)  any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Pursuant to the Development Plan (Part X Funding of subdivision works and Development Plan), each Landowner is required to make a contribution to the reconfiguration of their land comprising:

(a)  100% of all individual costs incurred by the relevant authority in respect of that landowner's landholding, and

(b)  a proportion of the total shared costs.

Individual costs mean the actual costs incurred by the relevant authority in respect of the landowner's landholding in relation to:

(a)  remediation and demolition works

(b)  contributions, levies or charges required paid or payable under sX, sX or sX of the relevant Act; and

(c)   the relevant authority's cost of funds (except to the extent that a landowner makes a monetary contribution)

an estimate of which is contained in Schedule X to this plan.

Shared Costs means:

(a)  the costs of the provision, extension and augmentation of the subdivision works excluding demolition and remediation on the subdivision land, as set out in Schedule X to the Development Plan, and

(b)  the Development Plan costs, as that term is defined in the relevant Act, and as set out in Schedule X to the Development Plan.

A landowner will be required to make the contribution required by clause X of the Development Plan under either:

(a)  contribution notice

(b)  a VCA.

Pursuant to clause X of the Development Plan, each Landowner may pay its contribution by:

(a)  the payment of a sum of money equal to the amount of the landowner's contribution (monetary contribution), or

(b)  agreeing to the compulsory acquisition by the relevant authority through a VCA of the whole or part of the landowner's landholding (land trade), or a combination of monetary contribution and land trade.

Part X of the Development Plan discusses the compulsory acquisition of land, rules regarding compensation and application of the relevant Act.

•         The relevant authority may at any time acquire any part of subdivision land for the planning purpose in accordance with this plan and the relevant Act by a voluntary contribution's agreement, or by compulsory process.

•         A landowner whose land is acquired for the planning purpose is entitled to compensation from the relevant authority in accordance with this plan.

•         Subject to this plan, the compensation to which a landowner is entitled for the acquisition of any part of their land is the carrying out of the subdivision works, and the performance of functions by the relevant authority to achieve the planning purpose.

•         For the purposes of this plan, the relevant authority may request that the landowner or other relevant person provide written evidence in respect of the presence of a principal place or residence or ongoing business concern on any land being acquired by the relevant authority from the landowner.

Part X of the Development Plan outlines how any surplus due to each landowner will be calculated.

Under the arrangement, Entity A will undertake the subdivision works on the land prior to acquisition of the traded/compulsorily acquired land from the Landowner. The subdivision works are outlined in section X of the Development Plan and include:

(a)  Works for the purpose of roads.

(b)  Works for the purpose of water supply.

(c)   Works for the purpose of sewerage services.

(d)  Works for the purpose of drainage.

(e)  Works for the purpose of electricity supply.

(f)    Works for the purpose of gas supply.

(g)  Works for purpose of telecommunications.

(h)  Works for the purpose of site remediation.

(i)    Works for the purpose of demolition.

(j)    Works for the purposes of, or ancillary to, the above works.

Consequently, the costs incurred by Entity A in respect of the subdivision works and related functions, results in a debt owed by the Landowner to Entity A. On completion of the subdivision works, Entity A procures the registration of the subdivision with the relevant entity which creates the traded lots, non-traded lots and dedicates any new roads. Entity A acquires the traded lots and sells these to third parties. This extinguishes the debt due by the Landowner to Entity A for the contribution amount in respect of the subdivision works undertaken on the land.

Further, pursuant to subclause X of the Development Plan, a Landowner whose land is acquired for the planning purpose is entitled to compensation from the relevant authority in accordance with this plan. Subclause X confirms that the compensation to which a landowner is entitled for the acquisition of any part of their land is the carrying out of the subdivision works, and the performance of functions by the relevant authority to achieve the planning purpose. This form of compensation is non-monetary compensation.

Paragraph 138 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration states:

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. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value.

Paragraph 139 of GSTR 2001/6 goes on to explain that the onus for determining the GST inclusive market value of the consideration rests with the supplier.

Further, paragraphs 159 to 165 of GSTR 2001/6 discuss the time when the GST inclusive value of non-monetary consideration is worked out. Specifically, paragraphs 160 - 162 state:

160. The GST Act does not specify the time when the market value of non-monetary consideration is to be ascertained for the purposes of working out the value of the supply under paragraph 9-75(1)(b). We consider that the time must be reasonable in the circumstances of a particular transaction. Depending on the circumstances, it may be:

•      when parties enter into a binding agreement;

•      when economic risk is transferred;

•      when a recipient assumes effective control.

161. You need to be able to demonstrate that these times, or another time at which you value the consideration, is reasonable in your particular circumstances.

162. The process of valuing non-monetary consideration can be done before or after the appropriate time as long as it reflects the GST inclusive market value at the time when it should be determined. For example, if you value non-monetary consideration for the purpose of entering into an agreement and that value reasonably reflects the value as at the time the agreement is made, you can use it to work out the value of your supply. However, it is not reasonable to use this value if you enter the agreement on the basis that the market value has changed from a value established before you entered the agreement.

In your case, the VCA specifically defines the Traded Land and the 'shared costs' component of the contribution. The 'shared costs' are fixed at the time the Landowner enters into the VCA and are borne in full proportionately by all Landowners. Entity A is responsible for the shortfall where actual costs exceed the estimate. The 'individual costs' component of the contribution is based on actual costs relating to the lot.

Part X of the Development Plan addresses rules regarding the distribution of the surplus (Surplus Payment) and outlines a formula to calculate that surplus. The surplus will be paid to each Landowner after completion of the Development Plan.

Based on the analysis outlined above, we consider that the consideration for Entity A's acquisition of a lot of traded land or a lot of compulsorily acquired land is determined in each instance with reference to the Landowner's contribution ('shared costs' and 'individual costs') plus the Surplus Payment made to Landowner of the lot (calculated in accordance with the formula outlined in subclause X of the Development Plan).

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