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Ruling

Subject: GST status of lease or licence for use of waterfront property

Question 1

Is the supply of a lease and/or licence of waterfront property by you subject to goods and services tax (GST)?

Answer

Yes. Your supply of a lease and/or licence for waterfront property is subject to GST. GST is also payable on the administration fee.

In particular:

· The supply is taxable under general principles.

· The supply is not an input taxed supply of residential premises.

· The supply is not outside the scope of the GST under the special rules contained in Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances

You are a state government agency. You are registered for GST.

You are constituted under relevant legislation.

Under the legislation your principal functions include managing property vested in you, and any other functions conferred or imposed on you by legislation.

For the purposes of exercising your functions you may:

· acquire, use, lease or dispose of land, buildings, vessels, equipment and other assets, and

· hold on behalf of the State, retain, transfer and dispose of assets, rights and liabilities transferred to you,

· carry on any activity or business that relates to the assets, rights and liabilities transferred to you or that is incidental or ancillary to the assets, right and liabilities transferred to you,

· develop and manage land transferred to you or otherwise acquired by you,

· for the purpose of exercising your functions, enter into any contracts or arrangements for the carrying out of any works or the performance of services or the supply of goods or materials, and

· for the purpose of exercising your functions, appoint agents and act as agent for other persons, and

· do all such things as are supplemental or incidental to the exercise of your functions.

As part of your responsibilities you administer land being the seabed, riverbed or reclaimed land. In doing so you provide occupancies of an area of waterfront public land for private structures.

You lease and/or licence the waterfront land to a third party in return for rent or a licence fee.

The rent or licence fee for the leases/licences of waterfront freehold land will comprise an occupancy rental charge and an administration fee.

The occupancy charge is determined using a formula based on commercial market information. The administration fee is based on an estimate of your basic costs of administration.

You have currently been treating the supplies as taxable.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-25

Section 195-1

Division 38

Division 40

Division 81

Reasons for decision

Summary

Your supply of a lease and/or licence for waterfront property (and the associated administration charge) is subject to GST.

You receive consideration for the supplies, and Division 81 of the GST Act does not alter this position. The supplies are taxable under the basic GST rules, and are not GST-free or input taxed.

Detailed reasoning

GST is payable on taxable supplies. Section 9-5 of the GST Act provides that 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.

You are supplying a lease and/or licence over land. A supply of real property is defined under section 195-1 of the GST Act as including:

(a) any interest in a right over land; or

(b) a personal right to call for or be granted any interest in or right over land; or

(c) a licence to occupy land or any other contractual right exercisable over or in relation to land.

In supplying the leases or licences you are making a supply of real property.

Occupancies are granted by you in the course of your administrative responsibilities, and an enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act). Therefore you are making the supply in the course or furtherance of an enterprise that you carry on.

As the real property is in Australia, the supply is connected with Australia as described in subsection 9-25 (4) of the GST Act. You are also registered for GST. Where your supply is for consideration, you will meet all the requirements of section 9-5 of the GST Act.

Where that is the case your supplies of leases and/or licences will be taxable to the extent that they are not GST-free or input taxed.

Supply is a supply for consideration

Chapter 4 of the GST Act contains special rules for the GST. These special rules apply only in particular circumstances, and are generally quite limited in their scope. The special rules modify the application of the basic GST rules. Rules in Division 81 of the GST Act provide that certain payments to Australian government agencies are not the provision of consideration.

When the GST was introduced the Commonwealth, states and territories agreed that the GST would apply to the commercial activities of government at all levels, but that the non-commercial activities of government would be outside the scope of the GST. Division 81 of the GST Act gives effect to this agreement.

Section 81-10 of the GST Act considers the effect of payment of certain Australian fees and charges. Australian fees or charges are not treated as the provision of consideration for a supply at first instance where they are of the nature described in this section. Subsection 81-10(4) of the GST Act considers that a payment is not the provision of consideration to the extent that the fee or charge relates to, or relates to an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence (however described). We consider that your circumstances involve a fee or charge for a permission, authority or licence. Therefore the further elements of section 81-10 must be considered.

An Australian fee or charge is a fee or charge (however described), imposed under an Australian law and payable to an Australian government agency (section 195-1 GST Act). An Australian law means a Commonwealth, state or territory law. Australian government agency means the Commonwealth, a state or territory, or an authority of the Commonwealth or of a state or territory (section 195-1 GST Act, as defined by reference to section 995-1, Income Tax Assessment Act 1997 (ITAA 1997)). We consider that under this definition you are an Australian government agency. Therefore where you impose a fee under a state law and the fee is payable to you this may meet the requirements of an Australian fee or charge.

You have advised that you consider that the relevant fees are not specifically imposed under any of your relevant legislation. We have reviewed the relevant legislation.

The legislation grants you authority to manage property vested in you. For the purposes of exercising your functions you may lease land, and also do all such things as are supplemental or incidental to the exercise of your functions. This does not specifically consider that you may charge the particular fees or charges for the leases or licences. While it may be implied that leasing the property will be for consideration, and therefore that you have imposed this charge under an Australian law, we consider that there needs to be a more clear authority to impose the particular charge before it is of the nature considered under Division 81 Therefore we consider that the relevant fee or charge is not imposed under an Australian law but under your lease or licence agreement, and therefore Division 81 of the GST Act does not apply to these arrangements.

However, even if this legislation was sufficient to conclude that the fee is imposed under an Australian law (as is required for Division 81 to operate), the regulations provide that the fee or charge would constitute consideration under Division 81.

Regulations may be made (under subsection 81-10(2)) that prescribe fees and charges that are to be treated as consideration. Such regulations have been made in Division 81 of the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations), at regulation 81-10.01. They include a fee or charge for a supply of a non-regulatory nature (regulation 81-10.01(g)), and a fee or charge for a supply by an Australian government agency, where the supply may also be made by a supplier that is not an Australian government agency (regulation 81-10.01(h)).

The Explanatory Memorandum to the Regulations explains that the term 'regulatory' captures those supplies made by a government agency, where that agency is legislatively empowered to make the relevant supply and the supply is to satisfy a regulatory purpose. For example, the EM considers that a fee or charge that relates to activities of government that are regulatory in nature includes a fee paid for a licence to operate a childcare facility. This is a fee that is required before activities in an industry can take place.

In contrast, we do not consider that the arrangements your lessees or licensees enter into is in the context of satisfying a regulatory requirement of an Australian law. Not all waterfront property holders enter into a relevant lease or licence, only those that want to have additional property benefits. Those that do enter into leases or licences do so in order to enhance their personal use or enjoyment of particular real property held by you.

The method of calculation of fees charged also indicates that the fees are of a commercial rather than regulatory nature. In particular, similar real property markets are analysed to come up with a commercial charge for lease or licence holders. Furthermore, leases or licences over real property are a common occurrence that may be supplied by parties other than Australian government agencies. Therefore regulation 81-10.01(h) determines that the fee or charge constitutes consideration for a supply.

Therefore we consider that the lease or licence fees are for a supply that is of a non-regulatory nature. It is a commercial supply that provides enjoyment of property rights to individuals. While this may also have some additional benefits of restricting or managing access to, and use of, that real property, the main purpose of these arrangements are to maximise or utilise assets that you hold for the benefit of all citizens.

The payment of amounts under these leases/licences is outside the scope of the fees or charges intended to be exempt under Division 81 of the GST Act. We consider for the reasons above that these are commercial activities, and are consideration for a supply.

The result is that the supply of real property by you is a supply for consideration. Therefore for these supplies all of the elements of section 9-5 of the GST Act are met. Therefore the supply is a taxable supply to the extent that the supply is not GST-free or input taxed.

Supply is not GST-free

There are no relevant provisions in Division 38 of the GST Act to make your supply of real property GST-free.

Supply is not input taxed

Division 40 of the GST Act considers input taxed supplies. In particular, a supply of premises that is by way of lease is input taxed under 40-35 of the GST Act if it is a supply of residential premises (other than commercial residential premises).

Section 195-1 of the GST Act provides the definition of residential premises and states:

residential premises means land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as residence or for residential accommodation;

(regardless of the term of the intended occupation) and includes a floating home.

This definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of being occupied. Vacant land of itself can never have sufficient physical characteristics for occupation or intended occupation as a residence. The structures for which occupancies are provided are also not accommodation or capable of occupation as a residence.

Goods and Services Tax Ruling, Goods and Services Tax: commercial residential premises GSTR 2000/20 (GSTR 2000/20), provides further guidance in relation to this issue at paragraphs 24 and 25.

24. The definition of 'residential premises' in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation or is intended and capable of being occupied as a residence or for residential accommodation.

25. The definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation. Vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be or intended to be occupied as a residence or for residential accommodation.

The real property you are leasing is vacant land which does not have the physical characteristics that enable it to be occupied. The use of the real property is for the relevant (non-habitable) structure of the lessee/licensee. It is therefore considered that the supplies of the leases and/or licences are not input taxed supplies of residential premises under section 40-35 of the GST Act.

Conclusion

You make a supply of real property for consideration, in the course of your enterprise, the supply is real property connected with Australia, you are registered for GST and the supply is not GST-free or input taxed. Therefore under section 9-5 of the GST Act you make a taxable supply.

We consider that the separately identified administrative fee that you will charge relates to the licence or lease. For the reasons considered above it is also a fee or charge for a supply of a non-regulatory nature. It is therefore consideration for a supply, being the supply of administrative services in relation to the lease or licence.

As all the requirements of section 9-5 of the GST Act apply, and there is nothing to make the supply GST-free or input taxed, the supply of administrative services is also a taxable supply.

Under section 9-40 of the GST Act you must remit the GST payable on the taxable supplies that you make.