Edited version of your written advice

Authorisation Number: 1012880371199

Date of advice: 20 November 2015

Ruling

Subject: GST and non-monetary consideration for supply of vacant land and new residential premises

Question

Is the Landowner required to be registered for GST when it transfers the legal titles of the Units and the vacant land to the Builder and the Financier respectively?

Answer

Yes, the Landowner will be required to be registered for GST because its GST turnover will be over the GST turnover threshold when it supplies the Units and the vacant land to the Builder and the Financier respectively.

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.

The parties:

The Landowner is a body corporate, has an ABN, but is not registered for GST. The Landowner is registered in the category of Australian Charities and Not-for-profits Commission.

The Landowner owns a property (the Land).

The Landowner proposes to enter into a joint venture agreement (Agreement) with the Builder and the Financier. The Builder is the principal contractor in connection with the building project (Project) on the Land. The Financier supplies the service of financing the Stage 1 of the Project to the Landowner.

The scope of the Project:

The Builder will apply to subtitle the Land into X Lots. The Builder is responsible for all things necessary to obtain rezoning and development permits.

All financing, development and construction costs to complete the Project are arranged by the Builder through the Financier. The Project has 2 stages.

Stage 1 of the Project: involves the construction on the Land of new residential premises. The strata units are built for residential accommodation. At the completion of stage 1 of the Project, Z titles are intended to issue, namely:

a) A separate title for each of the Units.

b) Common property.

c) An undeveloped portion of land (the vacant land).

Stage 2 of the Project is defined as the transfer of the vacant land from the Landowner to the Financier.

From the date of the Agreement, the Builder may market and sell "off the plan" some Units exclusively on whatever terms the Builder sees fit.

At the end of Stage 1, the Landowner will:

• Retain the legal titles of some newly constructed units.

• Transfer the legal titles of the remaining Units to the Builder, or sell them to third parties at the direction of the Builder.

• Pay to the Financier the amount of $YYY (GST inclusive).

• Transfer the vacant land to the Financier for no further consideration.

The Landowner intends to rent their Units to the public as residential accommodation.

The Landowner also provided a copy of the Expression of Interest from the Builder dated dd/mm/yyyy which shows.

Reasons for the decision:

Summary

The Landowner enters into the Joint Venture Agreement with the Builder and the Financier for the purpose of carrying on property development activities for the benefits of the Landowner. The gain received by the Landowner is to have the Builder and the Financier carrying out the development of the Land and financing the development costs. The gains represent the acquisitions costs which would be incurred by the Landowner when they acquire newly constructed units for their purpose of carrying out their leasing enterprise. We consider that the Landowner's activities would constitute an adventure or concern in the nature of trade.

The Landowner makes 2 taxable supplies as follows:

1. Supply of the remaining Units

The Landowner makes a supply of new residential premises when it transfers the legal titles of the remaining Units to the Builder (or to third parties at the Builder's directions). The consideration from the Builder is non-monetary in the form of the Builder's supply of land development services to the Landowner.

2. Supply of the vacant land to the Financier

The Landowner makes a supply of vacant land when it transfers the vacant land to the Financier. The consideration from the Financier is non-monetary consideration in the form of the Financier financing Stage 1 of the Project (subtracting the GST inclusive amount $YYY which the Landowner pays to the Financier).

Please note that when the Financier provides non-monetary consideration of the services of financing for Stage 1 of the Project for the Landowner's supply of the vacant land, the Financier is in turn making a supply of services to finance Stage 1 of the Project to the Landowner. The consideration from the Landowner is partly monetary, being the GST inclusive amount of $YYY, and partly non-monetary consideration in the form of the Landowner's supply of the vacant land to the Financier.

Consideration for barter transactions:

Paragraphs 22 to 26 of Goods and Services Tax Ruling (GSTR) 2001/6 provide that the consideration for the barter transactions would have the same value.

The value of the Builder's supply of land development services is equal to the market value of the remaining Units. The value of the Financier's supply of financing the Stage 1 of the Project is equal to the market value of the vacant land plus the GST-inclusive amount of $YYY.

We consider that the remaining Units and the vacant land are the Landowner's revenue assets, and the consideration will be included in the Landowner's projected GST turnover. Hence the Landowner will be required to be registered for GST.

The Landowner is required to remit 1/11^th of the market value of the remaining Units and the vacant land to the Australian Taxation Office (ATO) when it makes taxable supplies of the remaining Units and the vacant land to the Builder and the Financier respectively.

Detailed reasoning

Please note that your question is a requirement under paragraph 9-5 (d) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Hence we will discuss supply and taxable supply before answering your question.

Under subsection 7-1(1) and section 9-40 of the GST Act, an entity is liable for GST on the taxable supply it makes.

Characterisation of the supplies

Paragraph 9-10(2)(d) of the GST Act provides a supply includes a grant, assignment or surrender of real property.

Real property is defined in section 195-1 of the GST Act as including:

(a) any interest in or right over property; or

(b) a personal right to call for or be granted any interest in or right over property; or

(c) a licence to occupy property or any contractual right exercisable over or in relation to property.

We consider that when the Landowner transfers the legal titles of the remaining Units and the vacant land to the Builder and the Financier respectively, the Landowner makes a supply of real property to the relevant parties under paragraph 9-10(2)(d) of the GST Act.

Goods and Services Tax Ruling (GSTR) 2003/3: "when is a sale of real property a sale of new residential premises?" discusses Landowner title arrangements when residential premises are supplied.

GSTR 2003/3 states:

13. Sales of housing which has been used for residential accommodation before 2 December 1998 (either for rental income production or for owner occupation) are not subject to GST as new residential premises. The exceptions are where new residential premises are created through substantial renovations or are built to replace demolished premises on the same land.

84. Under paragraph 40-75(1)(c) new residential premises include residential premises that have been built, or contain a building that has been built, to replace demolished premises on the same land.

85. The word 'demolish' is not defined in the GST Act, and therefore takes its ordinary meaning. The general meaning of the word is 'to throw or pull down (a building etc); reduce to ruins; to put an end to; destroy; ruin utterly'. In the context of the GST legislation, demolish means the pulling down or removal of a building.

86. However, premises can be demolished without removal of all of the building, for example, where some of the existing foundations are retained.

87. Similarly, the demolition of premises, apart from the facade, and construction of residential premises behind the facade, would create new residential premises.

A residence built to replace a demolished one will be regarded as new residential premises.

Paragraphs 44 to 47 and 49 of GSTR 2003/3 state:

Company title converted to strata title

44. Company title means:

A type of title for multi-occupancy buildings (usually home units), common before the introduction of strata title. Under company title, a company owns the building, and the company's shares are divided into a number of blocks or classes, each block or class entitling the owner of the shares to exclusive occupation of a particular part of the building. This right of exclusive occupation is not a proprietary interest in the freehold, but is rather a contractual right against the company or sometimes a right to be granted a lease.

45. Under company title, the company holds the title to the building. The company may be the first owner having built the building (that is, it has never been sold) or it may have purchased the building (in which case it has previously been sold).

47. Where the company is the first owner of the building, the supply of the residential units by the company to the individual shareholders is a supply of new residential premises under paragraph 40-75(1)(a) as they have not previously been sold. The supply of the units may be a taxable supply by the company.

Paragraphs 96-98 of Goods and Services Tax Ruling (GSTR) 2003/3 state:

Application of subsection 9-30(4)

96. Subsection 9-30(4) states:

A supply is taken to be a supply that is input taxed if it is a supply of anything (other than new residential premises) that you have used solely in connection with your supplies that are input taxed but are not financial supplies.

Where the owner of rented residential premises later subdivides the land into two blocks, one with a residential building and the other a vacant block, subsection 9-30(4) does not apply to the supply of the vacant block. The subdivision of the land is a use of the land that is not in connection with input taxed supplies. Vacant land is not residential premises as defined in section 195-1 of the Act. The supply of the vacant block needs to be considered under section 9-5.

98. The words 'other than new residential premises' mean that subsection 9-30(4) will also not apply to the supply of new residential premises. The sale of new residential premises is to be considered under section 40-65 or section 9-5.

Goods and Services Tax Ruling (GSTR) 2001/6 "non monetary consideration", paragraph 16 states at paragraph 16:

16. By providing non-monetary consideration for a supply, you are in turn making a supply. Where this happens, you need to determine the GST consequences of the supply you make. If it is a taxable supply, you need to determine the GST inclusive market value of the consideration you receive for this supply to account for the GST payable. You may also be entitled to claim input tax credits for the supply made to you.

Applying the above, we consider that the Landowner, the Builder and the Financier have exchanged various rights and obligations to the transactions and there are four supplies as follows:

1) The Landowner makes a supply of the remaining Units to the Builder (or to third parties per the Builder's direction) with non-monetary consideration of the Builder's supply of land development services to the Landowner.

2) The Builder makes a supply of land development services to the Landowner with non-monetary consideration in the form of the Landowner's supply of the remaining Units to the Builder (or to third parties per the Builder's direction).

3) The Landowner makes a supply of vacant land when it transfers the vacant land to the Financier. The consideration from the Financier is non-monetary consideration in the form of the Financier financing Stage 1 of the Project (subtracting the GST inclusive amount $YYY which the Landowner pays to the Financier).

4) The Financier makes a supply of financing of Stage 1 of the Project to the Landowner. The consideration from the Landowner is partly monetary, being the GST inclusive amount of $YYY, and partly non-monetary consideration in the form of the Landowner's supply of the vacant land to the Financier.

Your question relates to the 1^st supply and the 3^rd supply. We will proceed to examine whether the two supplies from the Landowner to the Builder and to the Financier respectively are taxable supplies or not.

Taxable supply

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 for GST, or *required to be registered.

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

The term 'you' applies to 'entities' generally.

An entity is defined in section 184-1(b) of the GST Act to include a body corporate.

Hence the Landowner is an entity for GST purposes under paragraph 184-1(b) of the GST Act.

Based on the facts provided, the Landowner satisfies the requirements under paragraph 9-5(c) of the GST Act as the supplies that the Landowner makes are connected with Australia since the remaining Units and the vacant land are located in Australia.

Therefore, we need to consider:

• whether the supplies from the Landowner of the remaining Units and of the vacant land to the Builder and to the Financier respectively are made for consideration (paragraph 9-5(a) of the GST Act);

• whether the Landowner's supplies of the remaining Units, and of the vacant land are in the course or furtherance of an enterprise that the Landowner carries on (paragraph 9-5(b) of the GST Act); and

• whether the Landowner is required to be registered for GST (paragraph 9-5(d) of the GST Act).

Consideration (paragraph 9-5(a) of the GST Act)

The term 'consideration' for GST purposes is defined in section 9-15 of the GST Act as follows:

(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.

GSTR 2001/6, paragraphs 12, 42, 68 and 71 state:

12. A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as:

•   providing goods;

•   granting a right or performing a service (an act); and

•   entering into an obligation, for example to refrain from selling a particular product

(a forbearance)….

Example 6 - consideration not 'expressed as an amount of money'

42. Angus agrees to make a supply to Barry. The consideration to be provided by Barry is a particular goods. The agreement between the parties states that the goods are worth $100. For the purposes of subsection 9-75(1), the price for the supply by Angus is the GST inclusive market value of the specified goods.

68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

69. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

In addition, paragraph 67 in GSTR 2001/6 provides that the nature of the nexus required between supply and consideration is as follows: a payment will be consideration for the supply if the payment is "in connection with", "in response to", or "for the inducement of the supply".

We consider that there is a nexus between the transfer of legal titles of Units 1 to 5 inclusive from the Landowner to the Builder (or to third parties per the Builder's directions), and the Builder's supply of land development services to the Landowner. This nexus/contractual link is stated in the Agreement.

Similarly, we consider that there is a nexus between the transfer of legal title of the vacant land from the Landowner to the Financier and the Financier's supply of the service of financing the Stage 1 of the Project to the Landowner. This nexus/contractual link is stated in the Agreement.

Thus the Landowner's supplies of the remaining Units and of the vacant land to the Builder and to the Financier respectively satisfies paragraph 9-5(a) of the GST Act.

We will now examine paragraph 9-5(b) of the GST Act.

Is the Landowner's supplies of Units 1 to 5 inclusive and of the vacant land in the course or furtherance of an enterprise that the Landowner carries on (paragraph 9-5(b) of the GST Act)?

The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

(a) in the form of a business; or

(b) in the form of an adventure or concern in the nature of trade; or …

Paragraph 9-20(1)(b) was recently considered by the Federal Court in Professional Admin Service Centres Pty Ltd v. Commissioner of Taxation [2013] FCA 1123 where Edmonds J stated at [39]:

…But para (b) of s 9-20(1) makes it clear that an "enterprise" can include an isolated commercial venture in the nature of trade, which implies that it be entered into for a commercial purpose, including the purpose of profit-making:

Edwards (Inspector of Taxes) v Barnstow [1956] AC 14;

Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199;

Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 at 344-345 per Mason CJ, Brennan and Gaudron JJ; at 351-351 per Dawson J; and at 360 per McHugh J.

In this context, the Court focussed on the entity entering into a transaction for a commercial purpose, which includes the purpose of profit making. Similar comments were expressed by Dowsett J in the broader context of 'enterprise' in Russell v Commissioner of Taxation [2011] FCAFC 10 at [21] to [22].

21. The word "enterprise" is of some significance in the operation of art 7. The meaning of that word, in the context of an agreement with Switzerproperty, was considered by the High Court in Thiel v Federal Commissioner of Taxation 90 ATC 4717; (1990) 171 CLR 338, especially at 344-5 per Mason CJ, Brennan and Gaudron JJ, at 350-352 per Dawson J and at 357-359 per McHugh J. It seems that the word has a broad meaning. As Mason CJ, Brennan and Gaudron JJ said at 344:

"... an activity, as well as a framework within which such activities are engaged in, may constitute an 'enterprise' for the purposes of the agreement."

22. In other words, a business, in the usual sense, will be an enterprise. However an activity, which might not generally be treated as a business because of lack of continuity, may also be an enterprise; certainly if the activity amounts to an adventure in the nature of trade:
Edwards v Bairstow (1956) AC 1;
Minister of National Revenue v Tara Exploration and Development Co Ltd (1972) 28 DLR (3d) 135; Thiel at 352 per Dawson J; at 360 per McHugh J

The meaning of enterprise is considered in Miscellaneous Taxation Ruling (MT) 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

The principles outlined in the ruling and the determination have been applied in the Landowner's circumstances

Paragraph 10 of Goods and Services Tax Determination (GSTD) 2006/6 provides that 'an activity or series of activities' means any act or series of acts that an entity does. The acts can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity. Therefore, an enterprise can incorporate a single or one-off transaction such as the acquiring the property, demolish a house, subdivision, building and supply of strata units.

The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

In the absence of other facts, we consider that the Landowner's activities are not carried out in the form of a business if these current activities are part of a one off transaction on the property and not the beginning of an ongoing property development business.

As the Landowner's activities of land development and supplies of the remaining Units and the vacant land are isolated transactions, it is necessary to determine whether the development and supplies of the remaining Units and of the vacant land will have a commercial flavour that goes beyond the mere realisation of an investment asset or private asset.

In the form of an adventure or concern in the nature of trade

Paragraph 13 of GSTD 2006/6 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Isolated transactions with a commercial flavour are included in this category. Such transactions are of a revenue nature.

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

Certain factors listed at paragraph 265 of MT 2006/1 can be used as indicators of whether or not there is an activity done in the form of a business or in the form of an adventure or concern in the nature of trade. These factors include whether:

• there is a change of purpose for which the property is held,

• additional land is acquired to be added to the original parcel of land,

• the parcel of land is brought into account as a business asset,

• there is a coherent plan for the subdivision of the land,

• there is a business organisation (for example, a manager, office and letterhead),

• borrowed funds financed the acquisition or subdivision,

• interest on money borrowed to defray subdivisional costs was claimed as a business expense,

• there is a level of development of the land beyond that necessary for council approval for the subdivision, and

• buildings have been erected on the land.

In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

From the facts provided, the Landowner has held the Land for a long time.

We consider that the Landowner's development and sale of the remaining Units and the vacant land to the Builder and the Financier are in the course of an enterprise and more than the mere realisation of a capital asset because:

• To achieve its goal, the Landowner enters into the Agreement to allow the Builder to develop the Land and the Financier to finance the construction expenses. The Landowner agrees to a coherent plan for subdivision and development of the Land and later the sale of the remaining Units and the vacant land. The Landowner will give consent to the Builder to subdivide and construct new units on the Land, seek approval from council for the subdivision of the Land into many separate titles, and obtain finance for the Land's development. All planning and construction and finishing work will be completed by professionals and trade contractors via the Builder. The strata units are new and unoccupied. The vacant land has its own separate title. The Landowner will transfer the title of the remaining Units and the vacant land to the relevant parties with non-monetary consideration as described above.

• The Landowner will give consent to the Builder to arrange funds from the Financier to finance the subdivision, demolishment, construction and/or other costs.

• The development of the Land is beyond that necessary for council approval of the Land, and the development cost of the Land is substantial.

• The Landowner entered into the Agreement with the Builder and the Financier to set up the Land development Project, which is a complex agreement of a business organisation. The Landowner's intentions and activities have the appearance of a business deal.

• The Landowner takes actions to improve the Land beyond preparing an original asset for sale, to have the Builder building finished strata units on the Land, and to achieve the outcome that the Landowner will own some newly constructed Units.

The above factors suggest a commercial intention undertaken by the Landowner. The activities that the Landowner has conducted are similar to activities performed by many ordinary property owners who engage a Builder to build residential premises for the property owners' benefit.

Hence the ultimate purpose (motive) of the Agreement is to enable the Landowner to obtain some newly constructed Units, which otherwise would be unaffordable for the Landowner. The Landowner's transfer of the legal title of the vacant land is a barter transaction. As mentioned earlier, we consider that the Financier makes a supply of financing of Stage 1 of the Project to the Landowner. The consideration from the Landowner is partly monetary, being the GST inclusive amount of $YYY, and partly non-monetary consideration in the form of the Landowner's supply of the vacant land to the Financier.

For completeness, please note that that it is only individuals and partnerships of individuals that are excluded from being an enterprise if there is no expectation of making a profit, per paragraph 9-20(2)(c) of the GST Act . Incorporated entities such as the Landowner are not caught by this provision.

The Landowner's activities would constitute an adventure or concern in the nature of trade in accordance with paragraph 9-20(1)(b)of the GST Act.

Hence the Landowner's transfer of legal titles of the remaining Units and the vacant land are in the course or furtherance of an enterprise that the Landowner carries on. The supplies satisfy paragraph 9-5(b) of the GST Act.

We will now discuss the requirement of paragraph 9-5(d) of the GST Act.

Whether the Landowner is required to be registered for GST - paragraph 9-5(d) of the GST Act.

As the Landowner is not registered for GST, it needs to be established whether or not the Landowner is required to be registered for GST in relation to the transfers of the legal titles of the remaining Units to the Builder (or to third parties at the direction of the Builder), and the vacant land to the Financier.

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. The registration turnover threshold is defined under section 23-15 of the GST Act.

The Landowner is registered in the category of Australian Charities and Not-for-profits Commission. For this category, section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

a) your current GST turnover is at or above $150,000 and the Commissioner is not satisfied that your projected GST turnover is below $150,000; or

b) your projected GST turnover is at or above $150,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

a) supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises).

b) supplies that are not for consideration.

c) supplies that are not made in connection with an enterprise that you carry on.

d) supplies that are not connected with Australia.

In working out your projected GST turnover, paragraph 188-25(a) of the GST Act requires that you disregard any supply made or are likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Goods and Services Tax Ruling GSTR 2001/7: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discusses the meaning of capital assets. Paragraph 33 of GSTR 2001/7 provides that an asset which is acquired and used for resale in the course of carrying on an enterprise is not a capital asset for the purposes of paragraph 188-25(a) of the GST Act.

Paragraphs 34 to 36 of GSTR 2001/7 further provide that a revenue asset is an asset whose realisation is inherent in, or incidental to, the carrying on of a business. If the means by which you derive income is through a disposal of an asset, the asset will be of a revenue nature rather than a capital asset, even if this disposal is a one-off transaction. Where an asset is held by an entity over a period of time, its character may change from capital to revenue (that is, trading) or from revenue (trading) to capital. For the purposes of section 188-25 of the GST Act the character of an asset must be determined at the time of expected supply.

As discussed above, the Landowner's activities of developing the Land and disposing the remaining Units to the Builder (or to third parties at the direction of the Builder) and the vacant land to the Financier constitute the carrying on of an enterprise. At the time of the intended sale, the nature of the asset is a revenue (trading) asset. We consider that the transfers of legal titles of the remaining Units from the Landowner to the Builder and the vacant land to the Financier do not constitute the transfer of capital assets and paragraph 188-25(a) of the GST Act does not apply.

Therefore, the disposal of the remaining Units and the vacant land are not excluded from the calculation of the Landowner's projected GST turnover. The value of the consideration for the transfer of legal titles of the remaining Units and the vacant land must be included in the calculation of the Landowner's current and projected GST turnovers.

Accordingly, when the Landowner transfers the legal titles of the remaining Units and/or the vacant land, their projected GST turnover would be above the GST registration turnover threshold of $150,000, and the Landowner is required to be registered for GST. Hence, paragraph 9-5(d) of the GST Act is satisfied.

We note that you may choose to backdate your GST registration to the date when you commenced your enterprise.

Even if a supply satisfies paragraphs 9-5(a) to (d) of the GST Act, it is not taxable if it is GST-free or input-taxed.

GST-free and input taxed supply

The transfer of legal titles of the remaining Units and the vacant land is not GST-free under any provisions of the GST Act or any other legislation. We will now consider whether they are input taxed supplies.

New residential premises

Goods and Services Tax Ruling GSTR 2003/3 provides guidance on when a sale of real property is a sale of new residential premises. This ruling is available from our website at www.ato.gov.au

Under section 40-65 of the GST Act, a sale of property is an input taxed supply if the property is residential premises to be used predominantly for residential accommodation unless the premises are:

a) commercial residential premises, or

b) new residential premises other than those used for residential accommodation before 2 December 1998.

'New residential premises' is defined in subsection 40-75(1) of the GST Act to mean premises that:

a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease,

b) have been created through substantial renovation of a building, or

c) have been built, or contain a building that has been built, to replace demolished premises on the same property.

Further, subsection 40-75(2) of the GST Act provides that premises are not new residential premises if the premises have been rented for a period of at least 5 years since the premises first became residential premises, the premises were last substantially renovated; or the premises were last built, as applicable.

From the facts provided, the remaining Units are residential premises to be used predominantly for residential accommodation. The remaining Units will be transferred to the Builder (or to third parties per the Builder's directions) upon completion and would be new and unoccupied when transferred. The remaining Units are neither used before 2 December 1998, nor rented for five years.

We consider that the supply of the remaining Units by the Landowner to the Builder is a supply of new residential premises under paragraph 40-75(1)(a) as the remaining Units have not previously been sold. The sale of the remaining Units from the Landowner to the Builder will not satisfy the requirements to be an input taxed supply of residential premises under section 40-65 of the GST Act.

Vacant land:

In relation to the vacant land, we have mentioned above that the definition of residential premises in section 195 of the GST Act does not include vacant land. The supply of vacant land is not an input-taxed supply.

Note: Only the Landowner's supply of the remaining Units (whether to the Builder or to third parties per the Builder's direction) is a sale of new residential premises. Any subsequent sale of the Units by the Builder to third parties will not be sale of new residential premises under paragraph 40-75(1)(a) of the GST Act.

In summary, the supply of the remaining Units and the vacant land by the Landowner to the Builder and the Financier respectively satisfy all the requirements of section 9-5 of the GST Act, and are taxable supplies. The Landowner is required to remit 1/11^th of the GST-inclusive market value of the non-monetary consideration to the Australian Taxation Office (ATO).

Additional Information - working out the value of non-monetary consideration

As discussed above, the considerations for the transfer of legal titles of the remaining Units and the vacant land are non-monetary consideration.

We refer you to paragraphs 13 and 19 of GSTR 2001/6 as follows:.

13. The amount of GST on a taxable supply is 10% of the value of the taxable supply. Under subsection 9-75(1), the value of a taxable supply is the price x 10/11, where the price is the sum of:

(a)   so far as the consideration for the supply is consideration expressed as an amount of money - the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b)   so far as the consideration is not consideration expressed as an amount of money - the GST inclusive market value of that consideration.

19. We consider that, in most circumstances, when the parties to a transaction are acting at arm's length, the goods, services or other things being exchanged are of equal market value. This value can be determined by using a reasonable valuation method that is agreed to by you and the other party. However, this method must produce a reasonable GST inclusive market value of the things exchanged.

Hence the 2 supplies being exchanged for each other will have equal market values. Paragraphs 21 to 26 of GSTR 2001/6 state:

Value of a taxable supply

21. The amount of GST on a taxable supply is 10% of its value which is 10/11ths of the price of the taxable supply. Subsection 9-75(1) provides that the price is the sum of the monetary consideration and the non-monetary consideration. This is set out in the following table:

Example 1 - wholly non-monetary consideration

22. Jasper sells a computer to Kasper in return for 10 office chairs. The GST inclusive market value of the computer and the chairs is the same for each, being $5,500.

23. Jasper supplies the computer for consideration (that is, for the chairs) and, as the supply is not otherwise GST-free or input taxed, he makes a taxable supply. As the consideration is non-monetary, under subsection 9-75(1), the price for the supply of the computer is the GST inclusive market value of the chairs, that is, $5,500. Using the table at paragraph 21, the GST payable by Jasper :

=   10% x value

=   10% x 10/11 x price

=   10% x 10/11 x [amount of monetary consideration + GST inclusive market value of the chairs]

=   10% x 10/11 x [$0 + $5,500]

=   10% x 10/11 x $5,500

=   $ 500 .

24. As the acquisition Kasper makes is a creditable acquisition, he is entitled to claim an input tax credit of $500, provided he has a relevant tax invoice when he submits his GST return .

25. Kasper makes a taxable supply of the chairs to Jasper who provides the computer as consideration. The GST payable by Kasper:

=   10% x value

=   10% x 10/11 x price

=   10% x 10/11 x [amount of monetary consideration + GST inclusive market value of the computer]

=   10% x 10/11 x [$0 + $5,500]

=   10% x 10/11 x $5,500

=   $500 .

26. As the acquisition Jasper makes is a creditable acquisition, he is entitled to claim an input tax credit of $500, provided he has a relevant tax invoice when he submits his GST return .

Example 2 - partly non-monetary consideration

27. Steve's Faxes Pty Ltd supplies a fax machine to Lil's Cycle Shop in return for a bicycle and $110. The bicycle has a GST inclusive market value of $550. The fax machine has a GST inclusive market value of $660 .

28. Using the above table, the GST on the supply of the fax machine by Steve :

=   10% x value

=   10% x 10/11 x price

=   10% x 10/11 x [amount of monetary consideration + GST inclusive market value of the bicycle]

=   10% x 10/11 x [$110+ $550]

=   10% x 10/11 x $660

=   $60 .

The market value of the remaining Units and the vacant land can be determined by using a reasonable valuation method that is agreed to by the Landowner, the Builder and the Financier. However, this method must produce a reasonable GST inclusive market value of the things exchange. GSTR 2001/6 provides reasonable methods for determining the GST-inclusive market value of non-monetary consideration.

Hence, the Landowner is required to remit 1/11^th of the GST-inclusive market value of each of the Lot which it transfers to the Builder and to the Financier to the Australian Taxation Office (ATO).

Additional Information - Margin scheme

Where you make a taxable supply of real property by selling a freehold interest in property, or selling a stratum unit, or granting or selling a long-term lease, you may be eligible to apply the margin scheme in working out the amount of GST on the supply. For further information on the margin scheme, refer to the: GST and the margin scheme guide (NAT 15145), and the list of relevant public rulings/publications which are available on our website at www.ato.gov.au

Additional Information - Claiming input tax credits

Once you are registered for GST, you are liable for the GST on all taxable supplies that you have made, or will make. However, you will be entitled to claim input tax credits (ITCs) for any creditable acquisitions that you have made, or will make, provided you hold the relevant tax invoices.

Section 11-20 of the GST Act provides that you make a creditable acquisition if:

• you acquire anything solely or partly for a creditable purpose; and

• the supply of the thing to you is a taxable supply; and

• you provide, or are liable to provide, consideration for the supply; and

• you are registered, or required to be registered.

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that:

• the acquisition relates to making supplies that would be input taxed; or

• the acquisition is of a private or domestic nature.

Therefore, you are entitled to claim ITCs on the GST included in the costs incurred on creditable acquisitions to the extent that relate to the sale of the new property where your GST registration is backdated to a date before you made the creditable acquisitions.

Please note that you are not entitled to claim ITCs on the GST included in the cost incurred for the units you intend to lease to the public for residential accommodation. Please see general guidance about rental of residential premises on this link:

https://www.ato.gov.au/Business/GST/When-to-charge-GST-(and-when-not-to)/Input-taxed-sales/Residential-premises/

Rental of residential premises

If you rent out residential premises for residential accommodation, your rent is input-taxed and you don't include GST in the rental charge. You also can't claim credits for the GST included in any costs relating to the rental, such as agent's commission or repairs and maintenance on the premises.

All public rulings and publications are available on the ATO website at www.ato.gov.au

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 subsection 9-5(a)

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-10(2)(d)

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-20(2)

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 23-15

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2)

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-75(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 195-1