Edited version of your private ruling

Authorisation Number: 1012597122224

Ruling

Subject: GST and property transactions

Question 1

When would GST on the transaction fall due/become claimable:

a. On the initial sale to A Co?

b. (If any) on the reimbursement of the capital gains tax by A Co?

c. On the purchase of the XYZ Area?

d. On the re-sale of the XYZ Area: on the option price or if the option price is payable by instalment, on each instalment? and

e. On the resale of the XYZ Area: on the remaining payment (when the option is exercised)

Advice/Answers

Please refer to the Reason for decisions.

Question 2

If the payment by A Co to you for the initial transfer is deferred until the time at which you are required to pay A Co for the XYZ Area, is the GST on that payment also deferred?

Advice/Answers

Please refer to the Reasons for decision.

Question3

Does the offer by A Co to pay stamp duty on your purchase of the XYZ Area attract any GST?

Advice/Answers

Please refer to the Reasons for decision.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Background

• You purchased a warehouse/office building in Australia.

• You have been registered for GST as a sole trader since 1 July 2000.

• You account for GST on a cash basis.

• You intend to donate to A Co, a registered charity but not a deductible gift recipient (DGR) (with which you have had no formal/informal relationship) the entire site and all development rights except approximately xxx sq. m on the ground floor of the new residential building, to which you will retain title.

• The purpose of the gift to A Co is to enable the construction and leasing of affordable housing accommodation by A Co. The warehouse/office building will be converted to a strata title residential building.

• The XXX sq. m portion of the ground floor is to be retained by you for offices, meeting rooms, associated storage use and community facilities (the 'XYZ Area'). The subject area will require total fit out and upgrade works before occupation.

• You intend to sell the XYZ to a not-for-profit organisation (NFP2). There would be a caveat on the title requiring NFP2, should it ever decide to sell the XYZ Area, to give A Co first option to purchase at the price (CPI adjusted) it had paid you. Should A Co decline to purchase, NFP2 can offer the XYZ Area to another not-for-profit organisation, and should that not be successful, it could be offered on the open market.

You have assumed that the subdivision of the site would occur prior to construction. However, the relevant city council will not approve the subdivision until after the building is constructed. Because of the considerable design and construction costs involved, A Co will not proceed unless the title to the entire site has been transferred to it prior to the commencement of the construction.

Your current intention

Initial sale to A Co

n You will sell the entire site to A Co for the GST-inclusive price of $xxxxxxx (which includes $xxxx GST).

n You will include the sale in your relevant Business activity statement (BAS)

Purchase of XYZ Area

n On the same date you will pay A Co the same amount (GST-inclusive) for an "off-plan" purchase of the XYZ Area.

n A Co pays the GST component to the Tax Office in its relevant business activity statement (BAS).

n A Co has offered to pay the stamp duty on the transaction that is payable to the State Revenue Office.

Resale of X Area

n On the same date, NFP2 will take out an option to purchase the XYZ Area for the GST-inclusive price of the same amount and will pay you $xxx which will be deducted from the final purchase price when the transfer of title takes place, several years later.

n GST on the option is $xxx and will be included in your relevant BAS.

n Variation to the above arrangement

The option price is increased to $yyyyyy, payable on instalment to the completion date, at which NFP2 will pay the balance of the purchase price (for the remaining $zzzzz).

Relevant legislative provisions

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

s 9-5

s 9-15

s 11-5

s 11-15

Reasons for decision

Question 1

Summary

As you account for GST on a cash basis the attribution of the GST payable and input tax credit follows the basic attribution rules in subsection 29-5(2) and 29-10(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) respectively. However, where the sale contract is a standard land contract, the exception rules apply to attribute the GST payable/input tax credit in the tax period the settlement occurs.

Detailed reasoning

It is considered that you and A Co are not associates as defined under section 318 of the Income Tax Assessment Act 1936 and therefore Division 72 of the GST Act does not apply. The agreed value, therefore, can be used rather than the market value. Similarly, you and NFP2 are also not associates under the Division 72 of the GST Act.

The issue is how the attribution rules in Division 29 of the GST Act apply to your circumstances.

Division 29 of the GST explains how GST payable and input tax credits are attributable to an entity's tax period. You lodge your BAS quarterly and therefore your tax period is 3 month tax period ending on 31 March, 30 June, 30 September and 31 December in any year. The following basic rules apply for an entity who accounts for GST on a cash basis

The basic rules of attribution for cash basis reporting

GST payable

Under subsection 29-5(2) of the GST Act you attribute GST on a taxable supply to the tax period in which you receive a payment in respect of the taxable supply. The amount of GST that you attribute to that tax period is proportional to the amount of payment that you received in that tax period. That is, if you receive half of the total consideration for the supply in that tax period, you attribute half of the total GST to that tax period. You include the GST in your BAS for that tax period.

Input tax credit

Under subsection 29-10(2) of the GST Act you attribute the input tax credit for a creditable acquisition to the tax period in which you pay for it. The proportion of input tax credit that you attribute to that tax period is the same proportion of the payment in that tax period. That is, if you paid half of the total consideration for the supply in that tax period, you attribute half of the total input tax credit to that tax period. You will include the input tax credit in your return for that tax period. However, you cannot attribute an input tax credit unless you have a tax invoice for the creditable acquisition when you lodge your BAS.

The exception

Goods and Services Tax Ruling GSTR 2000/28 explains the exception rules on the attribution of GST payable and input tax credit arising from the sale of land under a standard land contract.

Paragraph 25 of the Ruling states:

When you make a taxable supply of land under a completed standard land contract, you attribute the GST payable to the tax period in which settlement occurs. This applies if you account for GST on a cash basis or if you do not account for GST on a cash basis.

The effect of the special rules is to defer the basic attribution rules to the settlement date. Your liability of GST payable and input tax credit entitlement will be the same (that is proportioned to the amount received/paid).

For the purposes of GSTR 2000/28, paragraph 13 defines a "standard land contract" to be a written contract for the sale of land that provides for:

• the payment of a deposit that is either to be forfeited if the purchaser defaults or applied as consideration on settlement, and

• the payment of the balance of the purchase price upon settlement.

In your circumstances

a. The initial sale to A Co

Where there is no requirement to make a deposit for the sale agreement with A Co, the sale of your property is not made under a standard land contract.

In that scenario, you are required to apply the basic attribution rules in accordance with section 29-5 of the GST Act and attribute the GST payable (proportioned to the amount received) on your taxable supply of land to the tax period in which you receive the any payment from A Co.

However, where the two requirements of a standard land contract are met, the attribution rules will only be triggered from the settlement date, not earlier. You, the supplier of the property are required to include the GST component of the supply in the tax period where the settlement occurs. Any consideration (the deposit) received for the sale of the property prior to the settlement would not trigger the attribution.

b. The reimbursement of the capital gains tax by A Co to you

It is not disputed that the sale of your property is a taxable supply under section 9-5 of the GST Act. One of the requirements under section 9-5 of the GST Act is that the supply is made for consideration.

Section 9-15 of the GST provides that:

(1) Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

(2A) It does not matter:

(a) whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders; or

(b) whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal or other body that has the power to make orders.

Where the term of the sale contract includes the requirement for A Co to pay you an amount in addition to the contract price (the reimbursement of the capital gain tax), it is considered that the additional payment forms part of the consideration for the supply of the property to A Co. This is because the additional payment falls within paragraph

9-15(1)(a) or (b) of the GST Act. The additional payment is either made in connection with, in response to or could be an inducement of the supply of the property.

Therefore, the total consideration for the supply of your property to A Co is the total consideration that you will receive from A Co: the contract price and the additional payment (the reimbursement of the capital gains tax you pay on the sale of the property). You are required to remit GST of 1/11^th of the total price, not the contract price.

c. The purchase of the XYZ Area

It is not disputed that you will be entitled to an input tax credit equals to the GST payable on the supply of the thing acquired in accordance with section 11-5 of the GST Act.

• You acquire the XYZ Area (a commercial property) in carrying on your enterprise.

• The supply of the property to you is a taxable supply (GST is included in the sale price and the supplier is registered for GST).

• Under the sale contract you are liable to provide consideration for the supply.

• You are (as the purchaser) is registered for GST

Therefore, you are entitled to an input tax credit on the purchase of the XYZ Area.

Where the supply of the XYZ Area to you is made under a standard land contract, the date of the supply is the settlement date. That is, any amount paid prior to the settlement date will not trigger any attribution rule until the settlement date.

As discussed above, the input tax credit of will be attributable to the tax period when the settlement occurs and the amount is proportion to the consideration you have provided. The proportion of input tax credit that you attribute to that tax period (where the settlement occurs) is the same proportion of the payment in that tax period. If you have not paid any amount for the acquisition in the tax period, your entitlement for an input tax credit is also nil for the relevant tax period. You also need to hold a tax invoice for the acquisition of the XYZ Area when you lodge the relevant BAS.

Where the acquisition of the XYZ Area is not made under the standard land contract (the two requirements discussed above) the basic rules apply. That is, you attribute the input tax credit for a creditable acquisition to the tax period in which you pay for it. The proportion of input tax credit that you attribute to that tax period is the same proportion of the payment in that tax period

d. The option price

You grant NFP2 an option to acquire the XYZ Area and NFP2 pays an amount in return for the call option. The grant of the call option is a supply for GST purposes. The grant of the option meets all the requirements of section 9-5 of the GST to be taxable supply:

• you make a supply for consideration.

• the supply is made in the course or furtherance of your enterprise.

• the supply is connected with Australia as the property (the underlying supply) locates in Australia.

• you are registered for GST.

• the supply is not GST-free under any provision of the GST Act or other Acts.

Please note that although the grant of a call option is a derivative (an agreement the value of which is derived from, the value of assets, the property), Item 7 in the table in regulation 40-5.12 of the A New Tax System (Goods and Services Tax) Regulations 1999(GST Regulations) lists an option or obligation to make or receive a taxable supply (e.g. a commercial property) is not an input taxed financial supply.

Therefore, you are making a taxable supply under section 9-5 of the GST Act when you grant a call option that entitles the grantee to purchase your commercial property, the supply of which is a taxable.

The same attribution rules apply as discussed above. Please note that the supply of the right to acquire (call option) is not the supply of real property and therefore the exception rules does not apply. The basic rules apply.

Where the consideration for the option is made by instalments, you only liable for the corresponding proportion of the instalment amount received as discussed above.

e. The remaining payment for the acquisition of the XYZ Area.

The remaining payment is treated separately for the purposes of GST. The basic rules apply unless the supply of the XYZ Area is made under a standard land contract (see discussion above for the time of attribution where a supply of land is made under a standard land contract).

Please note that the consideration for the XYZ Area is the agreed sale price without the option price. Paragraph 9-17(1)(a) of the GST Act states:

If a right or option to acquire a thing is granted, then:

(a) The consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option.

Question 2

Summary

Where the payment from A Co to you in relation to your supply of the initial sale to A Co is deferred until the time at which you are required to pay A Co for the acquisition of the XYZ Area, the effect is that you attribute both the GST payable and input tax credit in the same tax period. The net amount for the two transactions will be the difference between the GST payable (for the supply) and the input tax credit (for the acquisition).

Detailed reasoning

Where the payment from A Co to you in relation to your supply of the initial sale to A Co is deferred until the time at which you are required to pay A Co for the acquisition of the XYZ Area, the two transactions are attributed in the same tax period, and can be offset each other to work out the net amount.

You are required to attribute the GST payable in the tax period when you receive any consideration for your supply. The GST liability is proportioned to the consideration you received.

Similarly, you attribute your input tax credit to the tax period when you make any payment to the supplier provide that you have a tax invoice at the time you make the claim. The input tax credit is also proportioned to the amount you provide.

Please note that where attribution for the receipt (the initial sale) and payment (acquire the XYZ Area) occurs in the same tax period, you are only required to remit the net amount.

Question 3

Summary

Similar to the answer in 1(b), the offer to pay stamp duty on your purchase of the XYZ Area is an induction to acquire the property and will reduce the consideration for the property. Your entitlement to an input tax credit is also reduced proportionally.

Detailed reasoning

The offer to pay stamp duty on your acquisition of the XYZ Area by the supplier is considered an inducement to acquire the property.

It is treated similarly to a discount on the purchase price. The purchase price is reduced by the offer amount. You are entitled to an input tax credit equals to 1/11 of the discounted amount (net of the contract price and the offer amount). When the payment of the reimbursement of the stamp duty to you is made in the same tax period where you make payment for the acquisition, the consideration you make will take into account the offer amount.

Where the offer amount is paid to you in a different tax period that is the full amount is paid in tax period and the reimbursement is made in the subsequent tax period, is it is an adjustment under Division 19 of the GST Act.

You claim the full input tax credit in the tax period when you make the full payment and make an increasing adjustment (to refund the over-claimed input tax credit) in the tax period when you receive the reimbursement. A copy of goods and services tax ruling GSTR 2013/2 which sets out the requirements for adjustment notes under Division 29 of the GST Act is attached for your information.