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Ruling

Subject: Goods and services tax and taxable supplies

Question

Is the payment to the taxpayers under an Agreement subject to Goods and Services Tax (GST)?

Answer

No, the payment to the taxpayers under the Agreement is not subject to GST.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You purchased a property for consideration. You are not registered for GST.

You moved into this property a short time thereafter and used it as your private residence. You are not using the property for income producing activity. The family homestead is in the middle of the property.

Entity A operates a mining business on neighboring properties. You have no interest in and are not associates of Entity A or its subsidiaries.

Entity A's activities are affected by local by-laws which imposes time constraints on mining activities conducted by Entity A, creating exclusion zones between the mining activities and homesteads. Your property is one of the homesteads affected by these restrictions.

Notwithstanding the above, the local by-laws allow Entity A and the homeowners to agree in writing to change these restrictions.

Accordingly, by way of an Agreement between you and Entity A, you agreed to allow Entity A to conduct mining activities for a longer period of time during the day and to a reduced exclusion zone from your homestead. No mining activity is conducted on your property.

The Agreement requires a payment to be made to you in satisfaction of the Agreement.

The payment is a one off payment from Entity A to you.

You took advantage of a one off opportunity when you accepted the offer from Entity A.

Relevant legislative provisions

Reasons for decision

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides you must pay GST on any taxable supply you make.

Section 9-5 of the GST Act defines a taxable supply as follows:

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.

(Items marked with an asterisk (*) are defined in the Dictionary at section 195-1 of the GST Act).

For a supply to be a taxable supply, all the requirements of section 9-5 of the GST Act must be satisfied; that is, if one requirement of that section is not met the whole section is not met.

Paragraph 9-5(a) of the GST Act requires that you make a supply for consideration. Subsection 9-10(1) of the GST Act defines the term 'supply' as any form of supply whatsoever. Without limiting the meaning of supply in subsection 9-10(1) of the GST Act, paragraphs 9-10(2)(e) and 9-10(2)(g) of the GST Act state that a supply includes:

(e) a creation grant, transfer, assignment or surrender of any right;

…

(g) an entry into, or release from, an obligation:

· to do anything; or

· to refrain from an act; or

· to tolerate an act or situation;

The meaning of supply is also discussed in Goods and Services Tax Ruling GSTR 2001/4 Goods and services tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4). Paragraph 21 of GSTR 2001/4 provides that for there to be a supply for consideration, three fundamental criteria must be met as follows:

· there must be a supply

· there must be a payment, and

· there must be a sufficient nexus between the supply and the payment for it to be a supply for consideration.

Paragraph 22 of GSTR 2001/4 provides that a supply is essentially something which passes from one entity to another. Paragraph 25 of GSTR 2001/4 states:

Subsection 9-10(2) refers to two aspects of 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 (the thing that passes) but also includes the action by which the thing passes from one entity to another. In your case, this would mean that you must take some action or do something to cause the supply to occur.

By entering into the Agreement, you have supplied a right to Entity A that permits Entity A to further their mining activities beyond the exclusion zone and outside the times set by the local by-laws. Such a supply, in our view, falls within the definition of 'supply' under section 9-10 of the GST Act.

As consideration for this supply you have received the payment as set out in the Agreement. As such, by entering into the Agreement you have made a supply for consideration in accordance with the requirements of paragraph 9-5(a) of the GST Act.

Further, the requirement at paragraph 9-5(c) of the GST Act is also met as it is understood that the Agreement was executed in Australia and therefore the supply is connected with Australia. What remains to be determined is if the requirements of paragraphs 9-5(b) and 9-5(d) of the GST Act are met.

It is noted that you are presently not registered for GST. However, section 23-5 of the GST Act provides that you are required to be registered if you are carrying on an enterprise 'and' your GST turnover meets the registration turnover threshold. Section 9-20 of the GST Act provides the definition of enterprises.

Without limiting the application of section 9-20 of the GST Act, regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) provides that the registration turnover threshold is presently $75,000.

Division 188 of the GST Act sets out the meaning of GST turnover. Subsection 188-10(1) states:

You have a GST turnover that meets a particular *turnover threshold if:

(a)   your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b)   your projected GST turnover is at or above the turnover threshold.

Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) provides guidance in relation to GST turnover. Paragraphs 11 and 12 state as follows in relation to current and projected GST turnover:

11. Section 188-15 defines 'current GST turnover'. Subject to the exclusions listed in paragraph 14, 'current GST turnover' at any time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during the current month and the preceding 11 months.

12. Section 188-20 defines 'projected GST turnover'. Subject to the exclusions listed in paragraph 14, 'projected GST turnover' at a time during a particular month is the sum of the values of all the supplies that you made, or are likely to make, during that month and the next 11 months.

Further, Paragraph 17 of GSTR 2001/7 states:

17. Under sub-section 188-10(1), you meet a particular threshold if your projected GST turnover is at or above the threshold. You also meet a turnover threshold if your current GST turnover is at or above the turnover threshold and it is not possible to conclude that your projected GST turnover is below the threshold. This will occur if your projected GST turnover is also above the relevant threshold, or if your circumstances are such that it is not possible to calculate a projected GST turnover. In either of these situations, the Commissioner can not be satisfied that your projected GST turnover is below the turnover threshold.

You have advised us that you purchased and occupied the property as a private residence. You have not used the property for any income producing activity. By accepting the payment, you merely took advantage of a one off offer from Entity A.

Given that this is a one off payment and that you are not conducting any income producing activities on the property, it would stand to reason that your projected GST turnover will be below the turnover threshold.

As such, based on the facts you have presented, the Commissioner is satisfied that your projected GST turnover is below the turnover threshold and therefore the requirement of paragraph 188-10(1)(a) of the GST Act will not be met.

Consequently, the requirement at paragraph 9-5(d) of the GST Act is also not met and therefore you are not making a taxable supply and your receipt of the payment will not be subject to GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1

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 7-1

A New Tax System (Goods and Services Tax) Act 1999 Division 188

A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) Regulation 23-15.01