Edited version of your written advice

Authorisation Number: 1012740871174

Ruling

Subject: GST and licence to enter and occupy

Question 1

Will the granting of rights and the undertaking of obligations by C and T upon entry into the Project Deed and various other agreements and licences that will be entered into (Project Documents) give rise to any taxable supply made by C to T or made by T to C?

Answer

No.

Question 2

Will either C or T will be liable to GST by reference to 'non-monetary' consideration for the purposes of section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for supplies made by C to T or supplies made by T to C as part of the Licence Structure?

Answer

No.

Relevant facts and circumstances

Specific rights and obligations to be considered are:

• the granting of a non-exclusive licence by T to C to enter and occupy the Construction Site required for construction (Construction Site Licence);

• a licence granted by T to C to use and occupy the land and access the non-land assets to perform operations activities (Operating Licence);

• a licence granted by T to C to provide access and use of the existing assets; and

• the handover by C of the equipment as contemplated by the Project Deed.

The Project is to be delivered in the following two packages:

1. the Early Works package, which is being delivered by the Managing Contractor under the Managing Contractor Contract; and

2. the design, construction, testing and commission, operations and maintenance package, otherwise known as the Project, which is to be delivered under the Project Deed.

The Project Deed which specifies each parties' obligations in relation to the Project. Under the Project Deed C will agree to finance, design, construct, commission and operate the Project. T will be required to make the following payments to C (T Payments):

• a single construction payment at conclusion of the Delivery Phase (Construction Price). The Construction Price will be funded from the Receivables Purchase Payment that T receives from Finance Co at the end of the Delivery Phase to acquire T's rights to receive the Licence Payments from C during the Operations Phase (see further explanation below); and

• Monthly Service Payments (MSPs) which will be initially fixed.

Under Clause 12.1 of the Project Deed, T will grant the C a non-exclusive licence to enter and occupy the Site required for construction (Construction Site Licence). As consideration for the grant of the Construction Site Licence, C will be required to pay T a nominal licence fee (Construction Licence Payment).

Under Clause 12.4 of the Project Deed, T will grant an additional licence to C to use and occupy the land and access the Non-land Assets to perform operations activities (Operating Licence).

As consideration for the grant of the Operating Licence, C will be required to pay floating rate licence fees (Licence Payment) to T during the Operations Phase of the Project.

Neither the Construction Site Licence nor the Operating Licence will provide C with the right to remove assets affixed to land.

T will also grant C the opportunity to undertake commercial advertising which will allow C to derive Commercial Revenues.

In order for C to fulfil its obligations under the Project Deed, T will provide access to certain geographic locations to C by way of granting a number of licences. Clause 51 of the Project Deed deals with the ownership of assets and licences to use. Broadly all assets affixed to the site will be owned by T. Once C acquires title to a moveable it must ensure that ownership transfers to T. Complementing this T grants C an exclusive licence to use the moveable assets for the purpose C of fulfilling its obligations under the Project 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 9-15

Reasons for decision

Questions 1 and 2

Summary

The granting of rights and the undertaking of obligations by C and T upon entry into the Project Deed and the Project Documents will not give rise to any taxable supply made by C to T, or made by T to C.

C and T will not be liable to GST by reference to 'non-monetary' consideration for the purposes of section 9-15 of the GST Act for supplies made by C to T or supplies made by T to C as part of the PPP Securitised Licence Structure.

Detailed reasoning

The Project Deed, in the Recitals notes in part that:

(B) T selected C as the proponent for the project to:.

(1) design and construct the Works, in consideration of the Construction Price; and

(2) maintain and provide certain Required Services in connection with the works during the Term, and operate and maintain the works during the Operations Phase in consideration of the Service Payments,

in accordance with the terms and conditions of the Project Deed.

The Project Deed notes that each task has specific and discrete consideration being the Construction Price and Monthly Services Payments and indicates that the successful completion of each task is the parties' desired outcomes. Subsequently, the granting of licences and entering into obligations outlined are not outcomes sought in their own right, but something akin to components or terms and conditions that are necessarily granted or fulfilled in order to achieve the desired outcome (supply) i.e. the design, construction and maintenance of the works and subsequent provision of services.

This reasoning accords with the view taken by the Commissioner in paragraphs 69 and 70 of GSTR 2006/9:

69. In GSTR 2001/6 the Commissioner points out that the recipient of a supply may provide or make a thing available for the supplier to use in making the supply. However, the provision of such a thing is not necessarily consideration. The corollary of this proposition is that providing or making the thing available does not necessarily give rise to a supply. It will depend on the facts and circumstances of the transaction between the parties whether the supplier's use of, for instance, facilities provided by the recipient in order to make the supply is simply part of the circumstances in which the supply is to be made, or does in fact involve a supply by the recipient to the supplier.

70. For example, a supplier may need to perform services on the recipient's premises. The recipient may agree to allow the supplier to use its computer facilities and stationery in performing the services. Depending on the particular circumstances, allowing the use of these things could be a condition of the contract that goes to defining the supply the supplier makes rather than being a supply of these things to the supplier by the recipient.

In the case at hand we accept that the granting of the stated licences by T is simply part of the circumstances in which the supply under the Project Deed is to be made by C. It follows that we accept that T is not making discrete supplies in granting the licences.

Therefore the handover by C of assets as contemplated in the Project Deed are similarly viewed to be part of the circumstances in which C makes the greater supply. Alternatively, the handover could be viewed as evidence of the greater supply that C is required to make.

Under this reasoning, the granting of the licences and the undertaking of the obligations are not supplies at all; it follows that such acts cannot be taxable supplies. Further, C and T cannot therefore be liable to GST by reference to 'non-monetary' consideration for the purposes of section 9-15 of the GST Act for supplies made by C to T or supplies made by T to C as part of the Licence Structure. This view is supported by the Commissioner's statement at paragraph 84 of GSTR 2001/6:

84. Also, subject to the terms of the agreement, transactions will often involve a supply made only for monetary consideration. In these circumstances, obligations entered into as part of the transaction by the entity that is liable to provide the money will not be separate parts of the consideration for the supply. Similarly, where the transaction in substance involves a supply made for a thing that is non-monetary consideration, the obligations to provide that thing will not constitute separate parts of the consideration.