Edited version of your private ruling

Authorisation Number: 1012524126207

Ruling

Subject: GST and compensation under an easement contract

Question 1

Are the amounts received as compensation under the Easement contract granting an easement over your land (Land) consideration for any taxable supplies?

Answer

No.

Relevant facts and circumstances

You own the Land. The Land has been used by a related discretionary trust (Trust) as part of a business. No formal lease agreement exists between you and the Trust, no rental fee is charged.

The Trust carries on a business. You, a beneficiary under the Trust, have received distributions from the Trust in the past, and expect to receive distributions from the Trust in the future. You and your wife are Directors of the Trustee company. The Trust is registered for GST, however you are not registered (or required to be registered).

You have entered into the Easement contract creating an easement to allow another entity to construct infrastructure on the Land. You have been compensation by the other entity.

You have not entered into any further contracts of this nature and do not expect to do so. You have not entered into contracts of this nature in the past.

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 9-20

Reasons for decision

Summary

The amounts received as compensation under the Easement contract, granting it an easement over the Land, are not consideration for any taxable supplies.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 in section 195-1 of the GST Act)

In your case, you have satisfied the requirements of paragraph 9-5(a) and 9-5(c) of the GST Act. That is, you have supplied rights or accesses to another entity in return for consideration and your supplies are connected with Australia as the Land is situated in Australia.

With regard to paragraph 9-5(b) of the GST Act, the supply you make must be in the course or furtherance of an enterprise that you carry on. Prior to granting the easement you were not carrying on any enterprise. Therefore, granting the easement could not have been part of any enterprise that you carry on. Hence we must consider whether the granting of the easement in itself may be regarded as an enterprise.

Section 9-20 of the GST Act defines enterprise to include an activity or series of activities done:

· in the form of a business

· in the form of an adventure or concern in the nature of trade

Miscellaneous Taxation Ruling MT 2006/1 and Goods and Services Tax Determination GSTD 2006/6 provide guidance on what is an activity, or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade.

Generally, a business is a trade engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an occasional or one-off transaction that does not amount to a business.

Further, paragraph 244 of MT 2006/1 states:

An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

From the information you have provided, it is considered that the activity of granting the easement over the Land is not in the nature of a business because there is no repetition or regularity. That is, it is a one-off transaction.

It is also considered that your activity of granting the easement over the Land is not an adventure or concern in the nature of trade. This is because the underlying asset (the Land) is a capital asset that is not held for the purposes of trade and it does not constitute a commercial activity.

As the grant of the easement over the Land is not made in the course of an enterprise that you carry on, the requirement of paragraph 9-5(b) of the GST Act is not satisfied.

As all the requirements of section 9-5 of the GST Act are not satisfied, you are not making a taxable supply. Therefore, the compensation you received is not consideration for any taxable supply.