Edited version of your private ruling

Authorisation Number: 1012533302839

Ruling

Subject: GST and compensation for the granting of an easement

Question 1

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

Answer

No.

Question 2

Are the amounts received as access fees under the Access Deed with A granting an access to a resource consideration for any taxable supplies?

Answer

No.

Relevant facts and circumstances

You own the Land which has been used by a related family 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 another 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 A to construct a structure on the Land. The option at clause 1 of the Easement contact has been exercised, namely:

In consideration of the payment of the non-refundable Option Fee by A to the Landowner (receipt of which is acknowledged), the Landowner irrevocably grants to A an option to acquire for itself or its nominee the Easement over the Easement Area.

The Easement contract allows for two potential compensation payments. The compensation is detailed in Item 5. This is comprised of two components, being disturbance compensation and additional disturbance compensation.

Disturbance compensation is defined. This amount is fixed, and was payable by A on exercise of the option. The additional disturbance compensation amount is also defined.

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.

The Access Deed and the Easement contract are interdependent. The Access Deed is required for A to access the easement on which the structure is to be constructed. Without this access the structure could not be constructed.

The Access Deed sets out the purpose and what you have granted to A:

The Landowner grants to A and A's invitees the right to enter the Property and access and take resources on the terms and conditions set out in this Deed

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 and access fees under the Access Deed 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 A 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 and the granting of access in themselves 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 activities of granting the easement over the Land and granting access are not in the nature of a business because there is no repetition or regularity. That is, they are component parts of a one-off transaction.

It is also considered that your activities of granting the easement over the Land and granting access are 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 and the grant of access are 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 and access fees are not consideration for any taxable supply.