Edited version of your written advice

Authorisation Number: 1012705922805

Ruling

Subject: GST and rebates on sale of vacant land

Question 1

Does Rebate A reduce the consideration that you receive for the sale of the land? If so, does the rebate constitute an adjustment event which arises at the time the rebate is paid to the purchaser?

Answer

Yes

Question 2

Does Rebate B reduce the consideration that you receive for the sale of the land? If so, does the rebate constitute an adjustment event which arises at the time the rebate is paid to the purchaser?

Answer

Yes

Relevant facts and circumstances

You are a government agency.

You acquired and, in conjunction with another government agency developed a residential precinct.

You have now sold xxx vacant lots from the precinct. The other government agency is the selling agent.

The contract for sale (copy supplied) provides for two rebates if certain conditions are met within 2 years from purchase.

The rebates are generally $xxx.

Apart from the requirements for eligibility set out in the Contract for the Sale of Land and the guidelines themselves, there are no contractual arrangements relevant to the payment of the rebates.

There is no penalty which applies to the purchaser if the guidelines or requirements are not complied with within the 2 year timeframe.

The rebates are paid where:

• the buyer has (within 2 years from purchase) completed the building and completed the rebate claim form, and

• you have assessed that it conforms with the guidelines.

At settlement, where there are potential rebates, the other government agency withholds the potential rebate amounts from the amount paid by the purchaser.

If, within the 2 year period, the purchaser completes the rebate claim form, the property will be assessed for compliance with the guidelines and requirements. Depending on the extent to which the property complies with the guidelines and requirements, the rebates will be paid in full or in part.

In the event that the 2 year period has expired and the rebate has not been claimed by the purchaser, the rebate amount withheld is paid to you by the other government agency.

You are currently applying the margin scheme to calculate the GST payable on the property sales, based on the total purchase price of the relevant lots, without making any GST adjustments when the rebates are paid.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 19-10

Reasons for decision

Question 1

Does Rebate A reduce the consideration that you receive for the sale of the land? If so, does the rebate constitute an adjustment event which arises at the time the rebate is paid to the purchaser?

Section 19-10 states:

(1) An adjustment event is any event which has the effect of:

(a) cancelling a supply or acquisition; or

(b) changing the *consideration for a supply or acquisition; or

(c) causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition.

Example: If goods that are supplied for export are not exported within the time provided in section 38-185, the supply is likely to become a taxable supply after originally being a supply that was GST-free.

(2) Without limiting subsection (1), these are *adjustment events:

(a) the return to a supplier of a thing, or part of a thing, supplied (whether or not the return involves a change of ownership of the thing);

(b) a change to the previously agreed *consideration for a supply or acquisition, whether due to the offer of a discount or otherwise;

(c) a change in the extent to which an entity that makes an acquisition provides, or is liable to provide, consideration for the acquisition (unless the entity *accounts on a cash basis).

(3) An *adjustment event:

(a) can arise in relation to a supply even if it is not a *taxable supply; and

(b) can arise in relation to an acquisition even if it is not a *creditable acquisition

(4) However, the return of a thing supplied, or part of a thing supplied, to its supplier is not an *adjustment event if the return is for the purpose of repair or maintenance.

Rebates are generally offered by suppliers to provide a particular incentive to purchasers, or prospective purchasers. The payment of a rebate may have the following GST effects:

i) The rebate may result in an adjustment to the price of the supply and thus trigger an adjustment event pursuant to Division 19-A, or

ii) The rebate may represent consideration for a separate supply by the purchaser.

The ATO fact sheet titled Rebates and GST provides guidance on the GST treatment of rebates. Although this fact sheet refers to rebates offered within the manufacturing, wholesaling and retailing industries, the principles are equally applicable to your situation.

A rebate that results in a reduction of the consideration of a supply gives rise to an adjustment event under Division 19. Examples of such rebates are volume rebates, early settlement discounts and trade discounts. For a rebate to reduce the price of a supply, it must relate to the supply and its price so as to bring about a reduction.

Alternatively, a rebate may be directed at subsidising, compensating or reimbursing a purchaser for expenditure undertaken on behalf of the supplier. Examples include advertising, warehousing, promotion, distribution or marketing services. These rebates provide a commercial advantage to the supplier and are treated as payment for a separate supply of services provided by the recipient. These rebates are not directed to reducing the price for the supply and do not create an adjustment event for GST purposes.

The issue of rebates for landscaping is dealt with at item 15.4.2 of the Property and Construction Industry Partnership - Issues Register. It suggests that these rebates may be consideration for a separate supply - the supply of landscaping by the purchaser. However, it notes that the answer would depend on the terms of the contract between the developer and the purchaser, and the facts of each individual situation.

To determine the GST effect of the rebates that you offer, it is necessary to identify the true character of the rebate by considering the intention of the relevant parties to the agreement in light of all the circumstances.

Special Conditions Clauses X and Y specifically state that you will pay the purchaser a rebate of a certain amount where they meet the requirements within the required time frame. The requirement is that they construct on the property any dwelling and other work that is in accordance with the guidelines. It is considered that the purchaser does not make any separate supply in exchange for the rebate. They satisfy eligibility criteria to receive the rebate and this information is provided for as part of the sales contract as an incentive to potential purchases.

In your circumstances, there is no binding contractual obligation on the purchaser to build within the 2 year limit or, in fact, at all. However, if the purchaser does complete their compliant building and other work within the 2 year period, they are eligible for the rebate.

Although the cash rebate may act as an incentive for purchasers to build within the time period and the estate would benefit from having new compliant dwellings constructed as soon as possible, this does not constitute a separate supply by the purchaser.

The purchaser pays the full purchase price at settlement. However, the fact that the potential rebate amount is put aside demonstrates the intention of the parties that the rebate relates to a change in the selling price of the properties.

In this situation, the giving of Rebate A will reduce the price for a supply of the property and, at the time of payment, it will give rise to an adjustment event under paragraph 19-10(2)(b).

Question 2

Does Rebate B reduce the consideration that you receive for the sale of the land? If so, does the rebate constitute an adjustment event which arises at the time the rebate is paid to the purchaser?

For the reasons outlined in Question 1, the giving of Rebate B will reduce the price for a supply of the property and, at the time of payment, it will give rise to an adjustment event under paragraph 19-10(2)(b).