Edited version of private ruling

Authorisation Number: 1011363143849

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Ruling

Subject: Vesting of property

Question

Is the statutory vesting of properties held by entity A in an Applicant:

(a) one or more taxable supplies for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the properties are 'new residential premises' which are not used for residential accommodation prior to 2 December 1998?

(b) input taxed pursuant to Subdivision 40-C of the GST Act, where the properties are not 'new residential premises' for the purposes of the GST Act or are otherwise 'new residential premises' which were used for residential accommodation prior to 2 December 1998?

(c) input taxed pursuant to subsection 9-30(4) of the GST Act, whether or not the properties are 'new residential premises' for the purposes of the GST Act?

Answers

(a) No

(b) No

(c) No

Relevant facts

Entity A is registered for GST.

Entity A holds property.

Certain legislation allows for the vesting of entity A's property to a selected applicant.

The fee simple title to the properties that are to be vested to the applicant is held by entity A.

Initial assessment of the applicant will be undertaken and may involve a process co-ordinated by entity A. In other cases, entity A will make an assessment based upon information already held on the Applicant.

Entity A has advised that there are no legal obligations created or arising from this initial assessment process. In participating in the assessment of the suitability of the applicant to receive vested properties, Entity A does not commit to the allocation of vested properties to any of the applicants, and that no contractual relationship is created between the applicant and entity A.

Entity A will hold an interest in the property in specific circumstances listed under statute. The interest held by entity A in the properties will accrue upon the Governor publishing a notice in the Government Gazette.

Entity A will not receive monetary consideration in return for the applicant gaining the fee simple estate in properties pursuant to the statutory vesting.

Reasons for decision

Summary

In the situation where properties are vested, entity A has not taken any action to cause the supply of the properties to occur. Hence, entity A will not make a taxable supply, and GST will not be payable by entity A where the properties are vested in an Applicant.

Detailed reasoning

a.

GST is payable on taxable supplies. Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia, and

(d) 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.

All the requirements of a taxable supply must be satisfied for a supply to be taxable.

The first requirement to be satisfied for a supply to be a taxable supply is that a supply is made for consideration.

In this case there will be a statutory vesting of real property consisting of residential premises and new residential premises to an applicant. Prior to the vesting, title to these properties will have been held by entity A. The statutory vesting that occurs will result in the extinguishment of entity A's title and the accrual of fee simple estate (subject to an interest held by entity A) in an applicant.

You have submitted that the statutory vesting of new residential premises by entity A in an Applicant is not a taxable supply for the following reasons:

i. the vesting is outside the scope of GST on the basis that entity A is not making a "supply" of properties; and

ii. even if entity A was making a supply of "new residential premises", there should be no taxable supply as there is no consideration for the vesting, as required under section 9-5 of the GST Act.

On the basis of GSTR 2006/9 we agree with the submission that there will be no supply of property made by entity A to a selected applicant. This is because; with reference to paragraphs 71 to 79 of GSTR 2006/9, an entity must do something to 'make a supply'.

According to the facts in this particular situation, entity A will not create legal obligations when it provides advice on the suitability of an applicant. That is, the assessment and selection processes, in which entity A participates, do not commit entity A, to the vesting of property in any of the applicants that provide an expression of interest as part of process.

Pursuant to relevant legislation, the vesting arises from an executive order, endorsed by the Governor by way of a Gazettal notice. It is at this point in the vesting process that something is done to create legal obligations for the vesting of the property. As the vesting will arise from this process, under the provisions of legislation, there is no supply made by entity A because entity A has not taken any action to cause the supply to occur.

Paragraphs 80 to 82 of GSTR 20006/9 also discuss the situation where a Government is empowered by legislation to acquire an interest in real property. In this case, we accept that where there is a vesting of property occurs pursuant to the relevant statutory provision, which is endorsed by the Governor by way of Gazettal notice this does not amount to a supply made by entity A. This is because consistent with paragraph 82, the vesting order will extinguish entity A's legal ownership of the asset and liabilities and provide the ownership to the new owner, in this case the applicant. Hence, entity A will not take any action to cause the supply of the property to be made.

As such, on the basis of the above analysis we consider that where the title to properties held by entity A are vested in an applicant by the relevant authority under statute there will be no taxable supply within the meaning of section 9-5 of the GST Act. This is because there will be no "supply" for which there is consideration for the purposes of subsection 9-5(a).

Note: On the basis that there is no supply by entity A where there is a vesting of property by the relevant authority, issue (ii) does not require consideration. As such we have not addressed this issue.

b. and c.

As explained in the reasons for decision outlined in question 1, where the properties have been vested by the relevant authority under the relevant statute there will be no supply for consideration by entity A for the purposes of subsection 9-5(a) of the GST Act. This is on the basis that there is no supply being made by entity A to the Applicant.

Consequently, as there is no supply the vesting of property can not be an input taxed supply pursuant to Subdivision 40-C or subsection 9-30(4) of the GST Act.