Edited version of private ruling

Authorisation Number: 1011695270095

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Ruling

Subject: Non-monetary consideration

Question

Are the methodologies proposed, to determine the GST inclusive market value of the non-monetary consideration, methods that satisfy the requirements outlined in Goods and Services Tax Ruling GSTR 2001/6 ' Goods and services tax: non-monetary consideration'?

Answer

Please see reasons for decision.

Relevant facts and circumstances

· You will enter into arrangements with various organisations.

· Under these arrangements, you are responsible for facilitating the provision of housing and accommodation to various people.

· You intend to provide land and dwellings (properties) by way of the transfer of title in the properties to the various organisations.

· In the event that the supply by you to the various organisations is a taxable supply, it was concluded that the entry by these organisations into binding 'obligations', as outlined in the relevant Agreements between you and the particular organisation, will be non-monetary consideration for the supply of the properties.

· You are seeking confirmation that the methodologies you wish to employ in order to determine the GST inclusive market value of the non-monetary consideration you receive are methods that satisfy the requirements outlined in Goods and Services Tax Ruling GSTR 2001/6 ' Goods and services tax: non-monetary consideration'.

· These methodologies will be used by you and the organisation to determine a mutually agreed GST inclusive market value of the consideration received, if it is determined that the organisation cannot ascertain the value of the consideration it provides.

· There are two scenarios under which you will transfer properties to the organisation and you propose to employ a different valuation method under each scenario.

Expression of Interest Projects

Under these projects you request building projects that include a proposal of land along with suitable building design plans for construction on the land. A valuation based on the land value and the development design occurs at this time. You then purchase and develop the land in accordance with the design plans and ownership in the completed property is then transferred to the organisation. You propose to use existing land valuations that were used for the original property (dwelling or land) purchases and adjusted in line with property prices, as existing at the time of the transfer to the organisation, using an appropriate property price index.

It is proposed to do the valuation at the time of transfer

Other projects

You undertake the construction of the properties with a developer on land that is owned or purchased by you and ownership in the completed properties is then transferred to the organisation. You may redevelop existing land, construct on land taken from your broad hectare land developments or purchase from joint venture partners.

You propose to use existing land valuations that were used for the original land purchases and propose to adjust the original land values using an appropriate land price index to reflect land prices existing as at the time of construction completion.

You propose to add the construction contract prices and add any subsequent additional costs to the land prices and then increment the indexed land valuations and construction costs by a suitable profit margin.

These property valuations will then be adjusted, using an appropriate property price index, to reflect property prices as existing at the time of transfer.

It is proposed to do the valuation at the time of transfer.

· You advise that no transfer of properties has occurred as at the date of your ruling application .

Your Contentions

· It is necessary for you to calculate the GST inclusive market value of the non-monetary consideration provided by the organisation.

· You and the organisation are parties dealing with each other at arm's length.

Reasons for decision

The advice contained in this document pertains to the sale of new residential premises only. We have not considered the position where existing homes, owned by you, have been refurbished.

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) explains how the A New Tax System (Goods and Services Tax) Act 1999 ('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). This includes transactions commonly referred to as barter, part exchange and 'in kind' payments.

You have advised that you will be making supplies of real property for non monetary consideration and have asked whether the methodology you plan to use to value this 'non- monetary consideration' is reasonable. You are advised that we can only provide advice on how the GST law impacts on your situation. We cannot comment on whether any particular valuation will produce a fair and reasonable result.

Paragraphs 138 to 158 of GSTR 2001/6 deal with reasonable valuations of non-monetary consideration. For example GSTR 2001/6 states at paragraph 138 and 139:

138. 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.

139. As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier.

You have advised that, unless the other party can produce a fair and reasonable value for the consideration it will be paying for your supplies, you plan to value the consideration you receive from your supplies by referring to the value of your supply of real property. As can be seen from paragraph 138, when parties are dealing at arms length, this is a reasonable approach.

Paragraph 144 of GSTR 2001/6 states:

144. You may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration. There will be situations where the methods used by parties differ according to their particular circumstances. Examples of reasonable methods include:

· the market value of an identical good, service or thing;

· the market value of a similar good, service or thing;

· the market value of the supply; or

· a professional appraisal.

Paragraphs 145 to 158 of GSTR 2001/6 provide further information concerning the reasonable methods listed in paragraph 144.

You have advised that there are two scenarios under which you are providing properties to the other party.

1 Expression of Interest projects

2 Other Projects

We have set out below a summary of your proposed valuation methods and our comments.

Valuation Methods

You have provided one valuation methodology in respect of each scenario.

· Expression of Interest projects

You have advised that you propose to use existing land valuations that were used for the original property (dwelling or land) purchases. These will be adjusted in line with property prices, as existing at the time of the transfer to the other party, using an appropriate property price index.

We advise that:

· Providing the application of the property price index results in a reasonable GST inclusive market value of the consideration at the time of transfer, the approach outlined would seem appropriate in the circumstances.

· Other projects

You have advised that you propose to use existing land valuations that were used for the original land purchases and proposes to adjust the original land values using an appropriate land price index to reflect land prices existing as at the time of construction completion. In addition you propose to add the construction contract prices and add any subsequent additional costs to the land prices and then increment the indexed land valuations and construction costs by a suitable profit margin. Theses property valuations will then be adjusted, using an appropriate property price index, to reflect property prices existing at the time of transfer.

We advise that:

Providing the application of the various price indices results in a fair and reasonable GST inclusive market value of the consideration at the time of transfer, the approach outlined would seem appropriate in the circumstances.

Timing

The GST Act does not specify the time when the market value of non-monetary consideration is to be ascertained for the purpose of working out the value of the supply under paragraph 9-75 (1)(b) of the GST Act. The Tax Office considers that the time must be reasonable in the circumstances of a particular transaction and depending on the circumstances, the time may occur at the time the parties enter into a binding agreement, when economic risk is transferred or when effective control is given to the recipient.

The supplier will need to be able to demonstrate that the time at which they valued the consideration, is reasonable in the particular circumstances. 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 have been determined.

In both scenarios you propose to value the properties at the date of transfer as this will be the date when a binding agreement between the you and the other party will be entered into and the other party will assume effective control of the properties.

We consider that the proposed time of valuation to be reasonable in the circumstances.