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Ruling Subject: Compulsory acquisition of property

Question 1

Are you making a taxable supply when your property has been subject to a compulsory acquisition by a government authority?

Answer 1

No, you are not making a taxable supply when your property has been subject to a compulsory acquisition by a government authority.

Question 2

Are you required to issue a tax invoice to the government authority for the purposes of Sub-division 29-C of the GST Act?

Answer 2

No, you are not required to issue a tax invoice to the government authority.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for goods and services tax (GST).

You agreed on matters relating to the compulsory acquisition of your property. Accordingly, the compulsory acquisition by the government authority was by consent.

The government authority ratified the agreement on compensation and resolved to compulsorily acquire your property.

The government authority acquired the land Interests subject to the existing tenancies.

The notice was published by the government authority acquiring the Land Interests.

On the date of publication in the Gazette of an acquisition notice, the land was:

(i) vested in the authority of the State acquiring the land; and

(ii) freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land.

No sale contract for the sale of the land interests was entered into between the entity and the government authority in respect of the compulsory acquisition.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 29-70

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a)   you make the supply for *consideration; and

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

(c)   the supply is *connected with Australia; and

(d)   you are *registered, or *required to be registered.

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

(*denotes a term defined under section 195-1 of the GST Act.)

The term supply is defined in subsection 9-10(1) of the GST Act to include any form of supply whatsoever.

According to paragraph 25 of Goods and Services Tax Ruling GSTR 2001/4, subsection 9-10(2) of the GST Act refers to two aspects of a supply; the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment, surrender or release.

Therefore, in the GST Act, the term supply covers not only the subject of the transaction of the thing that passes but also includes the action by which the thing passes from one entity to another. As the first requirement of a taxable supply states that you must make a supply for consideration, it is necessary that you as the supplier take some action to cause a supply to be made.

The government authority compulsorily acquired your property with your consent and you were paid compensation.

Goods and services tax ruling GSTR 2006/9 provides guidance on GST and supplies. Paragraphs 80 to 84 state:

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 the real property; and

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

Vesting in the government authority

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 that interest. That entity may agree to the compensation determined by the Valuer-General and execute a form of release. If the entity disputes the compensation amount, there is provision for payment of 90% of the initial valuation until the matter is resolved.

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.

82A. However, in other cases the owner may do something or undertake some action such that it does make a supply of the land that vests in the authority. For example, see the decision in Re Hornsby Shire Council v. Commissioner of Taxation in which the Administrative Appeals Tribunal found that, in the circumstances the owner, CSR Limited, made a supply of its land by way of entry into an obligation and the surrender of its land when it issued a notice, pursuant to statute, compelling the Hornsby Shire Council to acquire its land.

83. Some statutes provide that land remaining, where only part of the land (the 'target land') is to be compulsorily acquired, will also be compulsorily acquired if the owner and the acquiring authority agree that the remaining land will be of no practical use or value to the owner. In cases where, prior to the vesting of the target land, the owner and authority agree that the remaining land will also be acquired, and the remaining land is acquired contemporaneously with the target land, it is the Commissioner's view that the owner does not make a supply of the remaining land to the acquiring authority. Although the owner may have requested that the remaining land be acquired, the agreement reached between the parties, and the resulting acquisition of the remaining land is integral, ancillary or incidental to the compulsory acquisition of the target land.

83A. In contrast to the circumstances described in paragraph 83 of this Ruling, the land owner may, at a time subsequent to the authority's acquisition of the target land, request that the authority acquire the remaining land on the basis that it is of no practical use or value to the owner. Consistent with the decision in Re Hornsby Shire Council v. Commissioner of Taxation in these circumstances it is the Commissioner's view that the owner has taken some action by requesting that the remaining land be acquired and makes a supply of the remaining land by way of surrender to the authority. In such cases, the acquisition of the remaining land is not integral, ancillary or incidental to the authority's compulsory acquisition of the target land.

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.

In your case, you have agreed to the terms and amount of compensation of a compulsory acquisition. The land is acquired by operation of the statute upon publication of the acquisition notice.

Therefore, as your situation reflects that outlined above, you are not making a supply of your property when the the government authority acquired it by compulsory acquisition. The requirements of section 9-5 of the GST Act will not be satisfied. Consequently, you will not be liable for GST.

As you are not making a taxable supply you are not required to issue a tax invoice.