Edited version of your private ruling

Authorisation Number: 1012572156297

Ruling

Subject: GST & Developer contributions received by a Government Corporation

Issue 1

Question 1

Does Division 82 or Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to "X" developer contributions received by a Government Corporation from a land developer?

Answer

See reasons for decision.

X developer contributions are not subject to GST under Division 82 of the GST Act.

Alternatively, subsection 81-10(4) of the GST Act applies to X developer contributions as they relate to an application for the provision under an Act, of a permission or authority (however described). That is, X developer contributions are not subject to GST.

Question 2

Does Division 81 of the GST Act apply to a Y Contribution paid in cash by a land developer to a Government Corporation?

Answer

See reasons for decision.

The amount paid to a Government corporation for services as part of the Y Contribution is consideration for a GST-free supply of services under a provision of the GST Act.

Subsection 81-10(4) of the GST Act applies to the remaining component of the Y Contribution as it relates to an application for the provision, under the Development Act, of a permission or authority (however described). That is, the remaining component of the Y contribution paid to a Government corporation is not subject to GST.

Question 3

Does Division 81 of the GST Act apply to Z developer contributions paid in cash by a land developer to a Government corporation?

Answer

See reasons for decision.

Subsection 81-10(4) of the GST Act applies to Z developer contributions as they relate to an application for the provision, under the Development Act, of a permission or authority (however described). That is, Z developer contributions are not subject to GST.

Issue 2

Question 1

If the above developer contributions are constituted to be consideration for GST purposes, does a Government Corporation have the liability to pay the GST on the taxable supply or does the entity that grants the related development approval have the GST liability?

Answer

As all of the above developer contributions are either GST-free or not subject to GST, neither entity is liable for GST. See reasons for decision for questions above for further explanation.

Relevant facts and circumstances

· The Government Corporation is established by an Act.

· The Act provides, amongst other things, that the Government Corporation is a statutory corporation to which the provisions of a Corporations Act apply.

· Pursuant to the Corporations Act, a Charter was prepared which deals with, amongst other things, the nature and scope of the commercial operations undertaken by the Corporation and all requirements of the Minister or the Treasurer as to the setting of fees or charges payable to the Government Corporation.

· The Charter provides the Government Corporation shall adopt rates, fees and other charges set by:

· the Minister under an Act

· regulations by the Governor pursuant to these Acts

· the Government Corporation by agreement, under the Acts

· the Government Corporation on a commercial basis, for other services not covered by the above.

· Sections of an Act provide for X, Y, Z developer contributions to be made.

· Applications for developments involving land division (application) are lodged with and assessed by the Authority.

· Before granting a consent in respect of an application, the Authority must assess whether, amongst other things, 'the requirements of [Government Corporation] relating to the provision of services are satisfied'.

· The Authority will refer the application to agencies to review certain elements of the proposed development.

· The person who proposes to divide the land (land developer) is to pay to the Government Corporation a fee to determine the requirements relating to the provision of services to the proposed land division.

· Upon receiving from the Authority the application, the Government Corporation will ensure, amongst other things, that 'all internal subdivision and approach assets are sized accordingly and all link-up points are identified' and 'all allotments can be serviced whilst at the same time ensuring that the Government Corporation long term planning requirements are met'.

· Once the Government Corporation has determined the requirements, it will advise the Authority and the land developer.

· Where a land division requires extension of infrastructure to be created as part of the land division, the Government Corporation requires 'the extension must be undertaken by a Land Developer Agreement'. Otherwise, the land developer can choose to use a Land Developer Agreement for the extensions.

· Where a Land Developer Agreement is entered into between the Government Corporation and a land developer, the Authority in granting a [provisional] development authorisation will specify the agreement as one of the conditions of the authorisation.

· The Government Corporation published, amongst other things, the following fees and charges (to be paid by a land developer in cash):

· The Government Corporation is registered for GST.

X contributions

· Where a land division requires extension of infrastructure to be created as part of the land division, the Government Corporation will specify the extension requirements in a Land Developer Agreement which the Government Corporation and the land developer will enter into. The land developer must undertake the construction of the extension in accordance with those requirements.

· When the Government Corporation is satisfied that the construction of the extension has been completed in accordance with the Land Developer Agreement, it will issue to the land developer a certificate of practical completion (CPC) of the works done (that is, the assets constructed for the required extension).

· On issue of the CPC, the land developer must give the Government Corporation possession and control of those assets. The Government Corporation provides no payment or consideration when the assets are transferred to them.

· On issue of the CPC, the Government Corporation will notify the Authority that the requirements referred to in the Land Developer Agreement relating to the provision of services have been met for the assets for which the CPC has been issued.

· The assets transferred to the Government Corporation under the Land Developer Agreement are referred to as X developer contributions.

Y contributions

· Y Contributions are payable by a land developer for each new allotment created by land division that abuts an existing infrastructure. The Y Contribution comprises a contribution towards the existing infrastructure plus the cost of a connection to the new allotment.

Z contributions

· Z developer contributions are cash payments made by a land developer to the Government Corporation towards the funding of the modification of existing infrastructure so that it can accept the addition of the new development's network.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 81 and 82, and

A New Tax System (Goods and Services Tax) Regulations 1999 Division 81.

Reasons for decision

Background

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.

Also, chapter 4 of the GST Act contains special GST rules that apply in particular circumstances to modify the application of the basic GST rules. The special rules in Divisions 81 and 82 are relevant to your circumstances.

Division 81 of the GST Act provides that certain payments to Australian government agencies are not the provision of consideration. The application of this Division must be considered in your circumstances.

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.

Until 1 July 2011, various exemptions were set out in detail in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (the Determination). As a transitional measure, fees and charges listed in the Determination as at 30 June 2011 remain exempt until 1 July 2013. All the fees considered in this ruling are covered by the Determination and therefore remain exempt until that time.

Division 81 of the GST Act was amended as of 1 July 2011. The amended legislation continues the intention that regulatory charges that do not relate to particular goods or services will be not subject to GST. In this context, Division 81 of the GST Act allows entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles.

In particular section 81-5 of the GST Act provides that the payment of an Australian tax is not consideration, and section 81-10 of the GST Act provides that the payment of certain Australian fees and charges are not consideration. Regulations pursuant to Division 81 of the GST Act have also been made that specifically include or exempt certain payments from being the provision of consideration (see regulations 81-10.01 and 81-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Division 82 of the GST Act provides that supplies of rights by an Australian government agency to develop land do not constitute consideration for another supply which complies with requirements under an Australian law. As this case involves land developers receiving rights to develop land (from a third party) partly in return for meeting certain obligations and capital contributions to the Government Corporation the application of Division 82 of the GST Act needs be considered.

Australian tax, or Australian fee or charge

As a starting point, it is necessary to determine whether each of the developer contributions described in the facts is an Australian tax, or an Australian fee or charge before the further substantive requirements of Division 81 of the GST Act and the regulations made under that Division can be considered.

An Australian tax is a tax (however described) imposed under an Australian law, and an Australian fee or charge is a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency (section 195-1 of the GST Act).

Paragraph 36 in Roy Morgan Researh Pty Ltd v Commissioner of Taxation [2011] HCA 35 gives the usual description of a tax as cited by Latham CJ in Matthews v Chicory Marketing Board [Vict.] [1928] HCA 38 as

"It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered."

Paragraph 6 in Air Caledonie International v Commonwealth [1988] HCA 61 explains:

the negative attribute - "not a payment for services rendered" [in the usual description of a tax] - should be seen as intended to be but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham C.J. [in Matthews] are all present. Thus, a charge for the acquisition or use of property, a fee for a privilege and a fine or penalty imposed for criminal conduct or breach of statutory obligations are other examples of special types of exactions of money which are unlikely to be properly characterised as a tax notwithstanding that they exhibit those positive attributes.

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 of the GST Act, as defined by reference to section 995-1 of the Income Tax Assessment Act 1997).

A payment is imposed under an Australian law if there is a provision in the law requiring a payee to make the payment.

The GST treatment of:

· X developer contributions

· Y developer contributions; and

· Z contributions

is considered separately below.

Issue 1 Question 1

Summary

For the reasons discussed below, a payment of an Australian fee or charge which satisfies the requirements in Division 81 of the GST Act is not the provision of consideration for a supply. Therefore, no taxable supply is made and the payment is not subject to GST.

Detailed reasoning

X Developer Contributions

The Authority assesses applications for developments involving land division. Before the Authority grants consent in respect of an application, it will refer the application to the Government Corporation to determine the requirements relating to the provision of water supply and sewerage services to the proposed land division. Once the Government Corporation has determined the requirements, it will advise the Authority and the land developer.

The Government Corporation will specify the requirements in a Land Developer Agreement which the Government Corporation and the land developer will enter into.

Any development authorisation (provisional or otherwise) granted by the Authority will specify the Land Developer Agreement as a condition.

When the Government Corporation is satisfied that the conditions of the Land Developer Agreement have been met, it will issue to the land developer a certificate of the works done (the assets constructed).

On issue of the certificate, the land developer must give the Government Corporation possession and control of those assets. These transfers are referred to as 'X developer contributions'. At the same time, the Government Corporation will notify the authority that the requirements referred to in the Land Developer Agreement relating to the provision of services have been met.

For GST purposes, the provision of the X developer contributions by the land developer to the Government Corporation constitutes a supply made by the land developer.

Paragraph 76 of GSTR 2000/25 states:

the Commissioner considers that the grant of the right to subdivide, objectively, is a more proximate cause for … the works transferred than any right to be physically connected to the water … systems.

In the circumstances of the land developer providing the X developer contributions to the Government Corporation, we consider that the grant of a development authorisation (provisional or otherwise) by the authority is a 'more proximate cause' for those contributions. Therefore, section 82-5 of the GST Act applies to the development authorisation granted by the authority by not treating the authorisation as consideration for the supply by the land developer of the X developer contributions. That is, X developer contributions are not subject to GST.

Further, section 82-10 of the GST Act applies to the supply by the land developer of the X developer contributions by not treating it as consideration for the authorisation. That is, the authorisation is not subject to GST to the extent that it is made in return for the X developer contributions.

Alternatively, for GST purposes, in the circumstances of the transfer of the X from the land developer to the Government Corporation as a developer contribution, we consider that the transfer (that is, the making of the contribution) can be regarded as an in kind payment.

Further, we consider that an X developer contribution which is 'paid' by a land developer to a Government corporation in a land division does not satisfy the negative attribute ('not a payment for services rendered') in the usual description of a tax. It is 'a fee for a privilege'. It is not a tax. As it is imposed under an Australian law (whether the Acts) and is payable to a Government corporation (an Australian government agency), it is an Australian fee or charge.

Therefore, we consider that subsection 81-10(4) of the GST Act applies to a X developer contribution as it relates to an application for the provision, under the Act, of a permission or authority (however described).

Issue 1 Question 2

Summary

For the reasons discussed below, the amounts paid to the Government Corporation for connections as part of the Y Contribution are GST-free.

Subsection 81-10(4) of the GST Act applies to the remaining component of the Y Contribution as it relates to an application for the provision, under the Development Act, of a permission or authority (however described). That is, the remaining component of the Y contribution paid to a Government corporation is not subject to GST.

Detailed reasoning

Y Contributions

The Corporations Act requires that the Government Corporation Charter must deal with, amongst other things, all requirements of the Minister and the Treasurer as to setting of the fees or charges.

The Charter provides, amongst other things, that the Government Corporation shall adopt rates, fees and other charges set by the Minister under the Act.

Briefly, a section of the Act provides a land developer is liable to make a contribution to the Minister towards the cost of increasing the capacity of the infrastructure.

In accordance with these provisions and the requirements of the Charter to the setting of fees or charges, the Government Corporation published, amongst other things, the following GST exclusive fees and charges payable by a land developer in cash:

A Y Contribution is payable by a land developer in cash for each new allotment created by land division that abuts an existing infrastructure. The Y Contribution comprises a contribution towards the existing infrastructure plus the cost of a connection to the new allotment.

For GST purposes, as each amount is imposed under the Act (an Australian law) and is payable to the Government Corporation (an Australian government agency), it is an Australian fee or charge.

Paragraph 70 of GSTR 2000/25 states:

A fee charged by a supplier of water to cover a connection from the border of the recipient's property to an adjacent existing water … main or pipe controlled by the supplier is consideration for a GST-free supply.

Therefore, we consider that an amount for a connection as part of the Y Contribution is consideration for a GST-free supply of water under section 38-285 of the GST Act.

The Authority assesses applications for developments involving land division. Before the Authority grants consent in respect of an application, it will refer the application to the Government Corporation to determine the requirements relating to the provision of services to the proposed land division. Once the Government Corporation has determined the requirements, it will advise the Authority and the land developer.

Paragraph 76 of GSTR 2000/25 states:

the Commissioner considers that the grant of the right to subdivide, objectively, is a more proximate cause for the payments … than any right to be physically connected to the water … systems.

That is, for GST purposes, we consider that the payment of a component of the Y Contribution towards existing infrastructure is not consideration for the right to receive a GST-free supply under section 38-285 of the GST Act (see paragraph 75 of GSTR 2000/25).

Further, we consider that this component of the Y Contribution does not satisfy the negative attribute ('not a payment for services rendered') in the usual description of a tax. It is 'a fee for a privilege'. It is not a tax. As it is imposed under the Act (an Australian law) and is payable to the Government Corporation (an Australian government agency), it is an Australian fee or charge.

In these circumstances, we consider that subsection 81-10(4) of the GST Act applies to this component of the Y Contribution as it relates to an application for the provision, under the Development Act, of a permission or authority (however described). That is, the existing infrastructure component of the Y Contribution is not subject to GST.

Issue 1 Question 3

Summary

For the reasons discussed below, a payment of an Australian fee or charge which satisfies the requirements in Division 81 of the GST Act is not the provision of consideration for a supply. Therefore, no taxable supply is made and the payment is not subject to GST.

Detailed reasoning

Z developer contribution

Z developer contributions are cash payments made by a land developer to the Government Corporation towards the funding of the upgrade work carried out by the Government Corporation to existing infrastructure. The upgrade work ensures the infrastructure has sufficient capacity to cope with serving the newly created allotments.

The Government Corporation publishes Z developer contributions as charges.

For the same reasons provided under Y Contributions for a component of that contribution, we consider that subsection 81-10(4) of the GST Act applies to a Z developer contribution (as a charge) as it relates to an application for the provision, under the Development Act, of a permission or authority (however described). That is, Z developer contributions are not subject to GST.

Issue 2 Question 1

Detailed reasoning

As all of the above developer contributions are either GST-free or not subject to GST, neither entity is liable for GST. See reasons for decision for questions above for further explanation.