Edited version of your written advice

Authorisation Number: 1012739740857

Ruling

Subject: GST and compulsory acquisitions

Question 1

Will you be making a taxable supply where land is vested in D2, by the relevant Minister pursuant to the relevant legislation, in accordance with the proposed process?

Answer

No

Question 2

Will you be making a taxable supply where the proposed process is varied such that D1, via a Ministerial Submission to the relevant Minister requests the vesting of land to D2?

Answer

Yes

Question 3

Will you be making a taxable supply where the proposed process is varied such that D1 co-signs D2's Ministerial Submission to the relevant Minister requesting the vesting of land to D2?

Answer

Yes

Relevant facts and circumstances

You, D1 currently supply land to D2 in accordance with the terms of the Commonwealth Property Disposals Policy.

It has been proposed that land will be vested to D2 under relevant legislation. The proposed process is:

1. D1 writes to D2 advising them of surplus land that may be suitable for D2's purposes;

2. D2 confirms in writing the site(s) suitable for its purposes;

3. D1 makes available to D2 any due diligence material that may be held;

4. D2 undertakes their due diligence studies which form the basis of input into valuations for the site(s);

5. D1 and D2 agree the terms of transfer, including financial compensation which would then be included in a Vesting Summary;

6. D2 initiates a Ministerial Submission reflecting legal advice, which may include a copy of D1's letter from step 5 to the relevant Minister seeking his written direction that the land be transferred to D2 under the D2A;

7. The relevant Minister writes to D1 seeking confirmation of D2's approach;

8. D1 confirms to the relevant Minister that the terms proposed by D2 for vesting of the land are correct;

9. The relevant Minister signs the direction to vest the land, at which time, the land legally transfers to D2.

Alternatively, there may be a variance to step 6 whereby D1 may lodge a Ministerial Submission or co-sign D2's Ministerial Submission to the relevant Minister requesting the vesting of land to D2.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision

Note: In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Pursuant to section 9-5, a supply is taxable if it is:

• made for consideration

• made in the course of furtherance of an enterprise carried on by the entity making the supply

• connected with Australia, and

• made by an entity registered or required to be registered.

However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

The first requirement of section 9-5 is that there must be a supply.

Paragraphs 71 to 79 of Goods and Services Tax Ruling 2006/9: Goods and services tax: supplies (GSTR 2006/9) explain that in order to 'make a supply' the land owner must do something to cause a supply to occur.

Paragraphs 80 to 91 of GSTR 2006/9 discuss the GST consequences of vesting in a government authority of real property in accordance with State legislation. Paragraph 82 of GSTR 2006/9 explains that, in cases where land vests in the authority as a result of the authority seeking to acquire the land and initiating the acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority.

Paragraph 84 of GSTR 2006/9 explains that mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The owner accepting or disputing the acquisition, or terms of the acquisition or amount of compensation are not activities that effect the supply of the land. The land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner.

Question1

Where D1 merely provides a list of property that is surplus to D1's needs, or D1 negotiates the compensation to be received, these actions do not cause the supply of the land. Furthermore, if D1 confirms to the relevant Minister that the terms proposed by D2 for vesting of the land are accepted, this does not cause the supply of the land. Accordingly, the proposed process will not cause the subsequent transfer of the land to D2 to be a supply by D1. If there is no supply, a taxable supply cannot arise.

Questions 2 and 3

Paragraph 82A of GSTR 2006/9 discusses court case, Re Hornsby Shire Council v Commissioner of Taxation (2008) 71 ATR 442. In this court case, the land owner took action to compel the authority to acquire the land. The decision reached in this court case was that the land owner made a supply of its land by way of entry into an obligation and the surrender of its land when it issued a notice, pursuant to statute, compelling the Council to acquire its land.

Paragraph 82A of GSTR 2006/9 explains that, consistent with the decision in Re Hornsby Shire Council v Commissioner of Taxation, the land owner also takes some action to cause a supply to happen where the land owner makes a request to the authority for it to acquire its land.

Consistent with the decision in Re Hornsby Shire Council v Commissioner of Taxation, any action by D1 to request or to co-request the vesting of the land to D2, would be an action to cause a supply to happen. Accordingly, if there is a variance to step 6 whereby D1 lodges a Ministerial Submission or co-signs D2's Ministerial Submission to the relevant Minister requesting the vesting of land to D2, this action will cause the subsequent transfer of the land to D2 to be a supply by D1.

On the facts provided, the supply will satisfy the elements of section 9-5. Further, the supply will not be GST-free or input taxed. Therefore, where there is a variance to step 6, as outlined above, the supply of the land will be a taxable supply, pursuant to section 9-5.