Edited version of your written advice

Authorisation Number: 1012924496279

Date of advice: 10 December 2015

Ruling

Subject: GST and property

Question 1

Will the consideration for the supply (grant) of the Development Licence by Entity A to Entity B, be the nominal consideration and the outgoings paid by Entity B?

Answer

Yes

Question 2

1. Will Entity B make a taxable supply of Development Works to Entity A?

Answer

Yes

2. If the answer to (1) is yes, will the GST inclusive market value of the consideration be equal to:

i. The full costing of the Development works undertaken by Entity B; or

ii. The difference between the market value of the Sale Lots at the time of the Sale Offers and the aggregate purchase price payable under the Sale Contracts?

Answer

Yes

3. Will Entity B be able to issue an invoice for the Development Works and attribute its GST liability to the tax period in which practical completion and independent certification of the Development Works occurs (being the same tax period in which Entity A makes the Sale Offers)?

Answer

Yes

Question 3

1. Will Entity B make a creditable acquisition of the Sale Offers?

Answer

Yes

2. If the answer to (1) is yes, will the consideration be limited to the Development Works?

Answer

Yes

3. Will the market value of the consideration be equal to the market value of the Sale Offers?

Answer

Yes

Question 4

Will Entity B make a creditable acquisition of goods and services from the Approved Builder?

Answer

Yes

Question 5

1. Will Entity B make a creditable acquisition of the Sale Lots from Entity A?

Answer

Yes

2. Will the consideration be limited to the nominal purchase price payable under the Sale Contracts?

Answer

Yes

Question 6

Upon Entity B making a future supply of a Sale Lot to a third party:

1. Will Entity B make an input taxed supply under section 40-65?

Answer

No

2. Will a Sale Lot be "new residential premises" under section 40-75?

Answer

Yes

3. Will Division 129 apply to Entity B when the extent of creditable purpose is changed?

Answer

N/A

Relevant facts and circumstances

Note

The following documents have not been drafted at the time of this ruling application and have not been considered when preparing a response to the questions posed:

• The Side Deed

• Post Settlement Disposal programme

Entity B (you) are a company limited by guarantee.

The objects of Entity B are set out in its Constitution.

You are an "ACNC-registered charity" as defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and have been endorsed by the Commissioner as a charity under section 176-1 of the GST Act.

You are registered for GST and account for GST on an accruals basis.

The sole member of Entity B is Entity C.

Entity C is a charity registered by the ACNC. Entity C is a public benevolent institution endorsed to access the GST concession, the income tax exemption and the fringe benefits tax exemption. Entity C is also a deductible gift recipient.

Entity A is registered for GST.

Entity A issued a Call for Submissions (CFS) seeking submissions to increase the supply of affordable housing.

Entity C responded to the CFS with a proposal that puts forward an investment model for the development of a portfolio of affordable and social housing to be built on land to be made available by Entity A.

Entity C was awarded in principle the right to develop the Development Lots. Entity C then nominated you to enter into the Agreement For Licence (AFL) with Entity A and subject to the terms of the AFL, the Development Licence with the Entity A.

Pursuant to the AFL, you and Entity A will enter into the Development Licence upon satisfaction or waiver of conditions.

Pursuant to the Development Licence entered into between Entity A (as Licensor) and you (as Licensee):

(a) Entity A will grant you a non-exclusive licence of the Development Lots. You will pay to Entity A a nominal fee plus outgoings for the Licence.

(b) You will supply the Development Works to Entity A resulting in dwellings being constructed on the Development Lots and the Development Lots being subdivided into the Subdivided Lots.

(c) In order to fulfil your obligation to supply the Development Works to Entity A, you will acquire goods and services from the Approved Builder on commercial terms. You will pay the Approved Builder using finance from the Funding Provider.

(d) Upon practical completion and independent certification of the Development Works, Entity A will irrevocably offer to sell the Offer Lots to you on the terms of the Sale Contract.

(e) If you accept a Sale Offer and pay the nominal purchase price of $X, Entity A will transfer the Sale Lot to you in accordance with the Sale Contract; and

(f) Entity A will retain the Retained Lots (including any Offer Lots in respect of which you do not accept the Sale Offer);

You will use each Sale Lot to supply residential accommodation for consideration that is less than 75% of the GST inclusive market value of the supply.

In relation to the Retained Lots, it is conceivable that Entity A will either:

(a) Lease them to you, in which case you will sub-lease each Retained Lot in order to supply residential accommodation for consideration that is less than 75% of the GST inclusive market value of the supply; or

(b) Appoint you (or Entity C) to manage the leasing of each Retained Lot from Entity A directly to a social housing tenant.

You may from time to time, in the future, need to sell some or all of the Sale Lots in order to service the finance for the Development Works and to repay the Funding Provider. Such future sales will be conducted in accordance with the Post Settlement Disposal programme to be agreed between Entity A, you and the Funding Provider having regard to the objective of increasing the supply of affordable housing.

You have provided the following documentation in support of your ruling application:

1. Entity B Constitution

2. Development Licence entered into between Entity B and Entity A

3. Agreement for Licence

Relevant legislative provisions

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

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,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-250,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 176-1(1),

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 9-17,

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

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

Reasons for decision

Note: In this ruling

• Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

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

• For the purpose of this ruling, we have not been able to view the following documents referenced in the Agreement for Licence. To the extent that the arrangements or obligations outlined in these documents differ from the Agreement for Licence or the Development Licence, this ruling cannot be relied upon:

• Side Deed

• Post Settlement Disposal programme

Question 1

Will the consideration for the supply (grant) of the Development Licence, by Entity A to you, be the nominal consideration and the outgoings paid by you?

Under section 195-1, 'consideration' for a supply or acquisition means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition. Subsection 9-15(1) provides that 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.

Under subsection 9-15(2), it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2001/6, Goods and services tax: non-monetary consideration (GSTR 2001/6), paragraph 12, states that 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).

Paragraph 31 of GSTR 2001/6 goes on to say that where parties are dealing at arm's length and the consideration is wholly monetary (that is, 'expressed as an amount of money'), you do not need to establish the market value of the consideration to work out the price.

In this case, a Development Licence is granted by Entity A (Licensor) to you (Licensee) to enable you to undertake Development Works and erect the Dwelling Units on the Development Lots. Clause X of the Development Licence outlines the payments to be made by the Licensee. This includes:

1. A nominal licence fee of $xx ;

2. Outgoings, including rates, charges, assessments, duties and levies imposed by any Government Agency, tax (other than income or capital gains taxes) and land tax imposed by any Governmental Agency;

3. All costs, charges and expenses for all Building Services separately metered or provided to the Development Lots during the Term on time to the suppliers of those building services;

4. Installation of meters where no separate meter exists.

We consider that the $xx fee paid by you to Entity A is consideration for the supply of the Development Licence by Entity A to you.

Goods and Services Tax Determination GSTD 2000/10, Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises (GSTD 2000/10) discusses the payments made by a tenant under a commercial property lease.

Paragraph 1 of GSTD 2000/10 states that a supply of premises under a commercial property lease together with the services required by the tenant to use the premises will be a single supply of real property. Where a single supply is made, the reimbursement or payment of the Landlord's outgoings is consideration for the supply of the premises.

Paragraph 2 of GSTD 2000/10 states that the consideration for the supply of premises by a landlord includes amounts which are paid by the tenant under the terms of the lease:

• To the landlord for amounts for which the landlord is liable; or

• Directly to a third party where the payment is in satisfaction of the landlord's liability.

Consequently, those payments outlined under items 2 to 4 above, which can properly be regarded as liabilities of the Licensor will also form part of the consideration for the supply of the Development Licence.

Question 2

1. Will you make a taxable supply of Development Works to Entity A?

2. If the answer to (1) is yes, will the GST inclusive market value of the consideration be equal to:

I. The full costing of the Development works undertaken by you; or

II. The difference between the market value of the Sale Lots at the time of the Sale Offers and the aggregate purchase price payable under the Sale Contracts?

3. Will you be able to issue an invoice for the Development Works and attribute its GST liability to the tax period in which practical completion and independent certification of the Development Works occurs (being the same tax period in which Entity A makes the Sale Offers)?

Section 9-5 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 the indirect tax zone; and

(d) you are registered or required to be registered.

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

In your case, the supply is made in the course of your enterprise, is connected with the indirect tax zone and you are registered for GST. Further, the supply of Development Works will not be GST-free or input taxed.

Finally, we must examine the nature of any consideration you receive for the supply of Development Works to Entity A.

Many transactions involve parties entering into multiple obligations. The question arises as to whether those obligations are consideration (or additional consideration) for a taxable supply.

Paragraph 12 of GSTR 2001/6 states that 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).

The definition of a taxable supply requires, among other things, that you make a supply for consideration. There needs to be a supply, a payment and the necessary relationship between the supply and the payment. Where one party makes a monetary payment to another, something of economic value is provided. The question is whether there is a sufficient nexus between the supply and the payment as consideration.

The same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply.

Paragraphs 80 to 81 of GSTR 2001/6 provide that the test for determining whether a payment is consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. However, things such as acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction [emphasis added].

Paragraphs 33-37 of Goods and Services Tax Ruling Goods and services tax: development lease arrangements with government agencies (GSTR 2015/2) consider the respective supplies between the Developer and a government agency. These paragraphs state:

33.In completing the development works on the government agency's land, in accordance with the terms of a development lease arrangement, the developer makes a supply of development services to the government agency.^[9]

34. The supply of the land to the developer by the government agency is consideration for the developer's supply of development services if there is a sufficient nexus between supply of the development services and transfer of the land.

35. There is a sufficient nexus between the development services and the transfer of freehold or grant of a long-term lease if the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works.^[10] For example, the developer only becomes entitled to the freehold or long-term lease on completion of the development or a particular stage of the development.

36. In some cases, under the terms of a development lease arrangement, the government agency grants a call option to the developer. When exercised, the call option entitles the developer to the transfer of the freehold or a long-term leasehold interest in the land. The grant of a call option by the government agency is consideration for the developer's supply of development services if the grant of the call option is subject to or conditional on the developer completing specified development works.

37. Where the circumstances set out in paragraphs 33 to 36 of this Ruling apply, supply of development services by the developer is, in turn, consideration for the supply of the land or the grant of a call option by the government agency.^[11] The developer makes a taxable supply of development services and the government agency makes a taxable supply of land or a taxable supply of the grant of a call option.

In your case, Clause X of the Development Licence details the Development Works to be undertaken by you. Clause X of the Development Licence outlines the obligations of Entity A pursuant to Clause X and states:

Sale offer

In consideration of the Licensee carrying out the Development Works under clause X, within 5 Business Days after the date of a final IC Notice in respect of the whole of, or the last part of, a Separable Portion, the Licensor must make an offer to the Licensee to sell the Offer lots which form part of that Separable Portion the subject of the Final IC Notice, by giving to the Licensee:

(a) an Offer Notice; and

(b) a Sale Contract for each Offer Lot (in duplicate):

(i) completed with particulars of each Offer lot and the purchase price in accordance with clause X; and

(ii) executed by the Licensor (Sale Offer)

Further Clause X provides that on acceptance of a Sale Offer, you must give Entity A an Acceptance Notice and a Sale Contract for each sale lot. The Sale Offer may be accepted in respect of some or all of the Offer Lots.

For the sake of completeness, we note that Clause X of the Development Licence stipulates that the following are taxable supplies:

(a) the supply by the Licensee of the Development Works under Clause X, is for the consideration of the Sale Offer;

(b) the supply by the Licensor of the Sale Offer under Clause X is for a consideration equal to the market value of the Development Works.

The grant of the Sale Offers by Entity A is consideration for the Development Works undertaken by you on the Development lots. That is, the consideration (being the Sale Offers) is 'in connection with', 'in response to' or 'for the inducement of' the supply of the Development Works and are conditional on you completing specified development works. You are not entitled to the grant of the Sale Offer until the Independent Certifier has issued a Notice signifying that that all of the Development Works in respect of the relevant Portion of land have achieved Practical Completion.

Consequently, the supply of Development Works by you to Entity A is a taxable supply as all the requirements of section 9-5 are met.

Valuation of non-monetary consideration provided for supplies made under the development licence:

Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply.

Where the parties to a development lease arrangement are dealing with each other at arm's length, the Commissioner considers that the things exchanged between the parties are of equal GST inclusive market value. Therefore, in the context of a development lease arrangement between a government agency and a developer, the parties can use a reasonable valuation method as agreed between them to determine the GST-inclusive market value of any non-monetary consideration for supplies arising in the context of a development lease arrangement.

Paragraph 70 of GSTR 2015/2 states:

For example, the full costing of the development works, undertaken by the developer as part of a competitive tender process, which takes into account the full cost of construction (including builder margins), provides a reasonable basis for determining the GST-inclusive market value of the supply of development services by the developer. It also provides a reasonable basis for calculating the price of the government agency's related supply of land (or grant of a call option).

In your case, you have indicated that it is likely that you will use the method outlined in paragraph 70 of GSTR 2015/2 to determine the GST-inclusive market value of the supply of the development services by you. This is consistent with the Commissioner's view.

Alternatively, you have stated that the GST inclusive value will be calculated based on the difference between the market value of the Offer Lots at the time the Sale Offers are made and the aggregate purchase price payable under the Sale Contracts. The Commissioner considers that this is also a reasonable valuation method.

Attribution

In the context of a development lease arrangement, attribution of a GST liability or a corresponding input tax credit entitlement is required in the tax period in which:

• a monetary payment is received, or

• some or part of the non-monetary consideration is received, or

• an invoice is issued

whichever is earlier.

Paragraphs 93 and 94 of GSTR 2015/2 consider the attribution of the Developer's GST liability for its taxable supply of development services. These paragraphs state:

93. Non-monetary consideration, comprising the transfer of the freehold or long term leasehold interest in land (or in other cases, the grant of a call option), for the supply of development services made by a developer, is provided in full immediately on the transfer of the freehold or long term leasehold interest (or immediately on the grant of the call option in applicable cases).

94. In circumstances where no monetary consideration has been provided in an earlier tax period and no invoice has been issued in an earlier tax period, the developer's GST liability for its taxable supply of development services is attributable to the tax period in which the freehold or long-term leasehold interest in the land is transferred (or the call option granted).

Paragraph 106 of GSTR 2015/2 states further:

106. If none of the consideration (monetary or non-monetary) for the developer's supply of development services has been received by the developer in an earlier tax period, the developer's GST liability for its taxable supply of development services is attributable to the tax period in which the invoice is issued. In turn, any corresponding input tax credit that the government agency is entitled to for its acquisition of the development services is attributable to that same tax period.

In your case, Entity A, pursuant to Clause X of the Development Licence, will make an offer to you, to sell the Offer Lots within five Business Days after the date of a Final IC Notice (being the notice given by the Independent Certifier under clause 11.6(c)(II) which signifies that all of the Development Works in respect of the relevant separable portion have achieved Practical Completion) being issued. No non-monetary consideration (in the form of the Sale Offers by Entity A) for the supply of the development services is received by you prior to practical completion of the development.

Consequently, you will attribute the taxable supply of Development Services in the period in which the Sale Offers are made by Entity A.

Question 3

1. Will you make a creditable acquisition of the Sale Offers?

2. If the answer to (1) is yes, will the consideration be limited to the Development Works?

3. Will the market value of the Development Services be equal to the market value of the Sale Offers?

The term 'creditable acquisition' is defined in section 11-5 as follows:

You make a creditable acquisition if:

(a) You acquire anything solely or partly for a creditable purpose; and

(b) The supply of the thing to you is a taxable supply; and

(c) You provide, or are liable to provide, consideration for the supply; and

(d) You are registered, or required to be registered.

'Creditable purpose' is defined in section 11-15 as follows:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) 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.

In your case, providing the supply made by Entity A to you is a taxable supply, requirements (b) and (d) will be met.

Further, as explained in Clause 37 of GSTR 2015/2, the supply of development services by you is consideration for the supply or grant of a call option by Entity A. Consequently, requirement (c) is met.

The only other major determinant is whether the acquisition from Entity A is for a creditable purpose.

Pursuant to the Objects of Entity B, as detailed in the Constitution of the company, you will, on acquiring each Sale Lot following the acceptance of a Sale Offer from Entity A, construct residential accommodation thereon which you will use to supply residential accommodation for consideration that is less than 75% of the GST inclusive market value of the supply.

Section 38-250 states that a supply is GST-free if:

(a) The supplier is an *endorsed charity, a *gift-deductible entity or a *government school; and

(b) The supply is for * consideration that:

(i) If the supply is a supply of accommodation - is less than 75% of the *GST inclusive market value of the supply; or

(ii) …

The term endorsed charity is defined under subsection 176-1(1) as follows:

(1) The Commissioner must endorse an entity as a charity if:

(a) The entity is entitled to be endorsed as a charity (see subsection (2)); and

(b) The entity has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953.

(2) An entity is entitled to be endorsed as a charity if the entity:

(a) is an *ACNC-registered charity; and

(b) has an *ABN

You are an "ACNC-registered charity" as defined in section 195-1 and has been endorsed by the Commissioner as a charity under section 176-1. Therefore, its supplies of accommodation will be GST-free under section 38-250.

Consequently, to the extent that you make GST-free supplies, the acquisition of the Sale Offers are for a creditable purpose and will be a creditable acquisition.

As outlined in Question 2 above, in the context of a development lease arrangement between a government agency and a developer, the parties can use a reasonable valuation method as agreed between them to determine the GST-inclusive market value of any non-monetary consideration for supplies arising in the context of a development lease arrangement. As the parties are transacting at arm's length, the GST-inclusive market value of the non-monetary consideration for each respective supply (by Entity A of the Sale Offers and you of Development Services) will be of equal value.

Question 4

Will you make a creditable acquisition of goods and services from the Approved Builder?

Section 11-20 states that you are entitled to the input tax credit for any creditable acquisition that you make.

As outlined in Question 3, the term 'creditable acquisition' is defined in section 11-5.

The Constitution of Entity B provides that one of its primary objectives is to assist in the alleviation of poverty through the provision of social and affordable housing.

In order to achieve this objective, the activities of Entity B include:

(i) the provision of development works [as defined] to Entity A and the creation of developed lots. You will satisfy this obligation to carry out the development works by contracting the Approved Builder to provide the development services.

(ii) the purchase of "Offer Lots" from Entity A;

(iii) the provision of lease accommodation to low income groups for consideration that is less than 75% of the GST inclusive market value of the supply.

(iv) the lease of the retained lots [as defined] from Entity A; and

(v) the provision of lease accommodation on the retained lots for consideration that is less than 75% of the GST inclusive market value of the supply; and

(vi) the sale of some or all of the lots to service and /or retire the finance raised from third parties to pay the consideration for the Development Services.

We accept that you conduct an enterprise which includes the above objectives.

Consequently, where the Builder makes a taxable supply to you, we consider that the acquisition of the Development Services is a creditable acquisition as the building services will be acquired for a creditable purpose, you will be liable to provide consideration for the supply and you are registered for GST.

Question 5

1. Will you make creditable acquisition of the Sale Lots from Entity A?

2. Will the consideration be limited to the nominal purchase price payable under the Sale Contracts?

As outlined in Question 3 the term 'creditable acquisition' is defined in section 11-5.

In your case, provided the supply made by Entity A to you is a taxable supply, requirements (b) and (d) will be met.

Clause X of the Development Licence outlines the Sale Contract Terms. In particular, Clause X states that:

(a) The purchase price for each Sale lot is $X (including GST).

Section 9-17 deals with certain payments and other things not consideration. It states:

(1) 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; or

(b) if there is no such consideration - there is no consideration for the supply.

As the Sale Offer made by Entity A to you is a right granted by Entity A to you, the consideration, in this case, for the supply of the Offer Lot on the exercise of the Offer is limited to $X, being the additional consideration paid by you. Consequently, item (c) is satisfied.

Clause X of the Agreement for Licence outlines that an appropriate cash adjustment may need to be made between the parties and states:

(ii) as part of the determination of the Division of Portfolio, the parties must agree on an appropriate cash adjustment (if any) between them, in the event that the Market Value of the Retained lots or the Market Value of the Entity B Allocation does not equate exactly to the result achieved by applying the valuation and allocation principle set out in clause X or as otherwise agreed by the parties, and in that regard the following principles will apply:

(A) If an adjusting payment needs to be made, this must be agreed by the parties at the same time as the determination of the Division of Portfolio; and

(B) the adjusting payment (if any) must be made between the parties (as applicable) on the date of settlement of the transfer of the Entity B Allocation to Entity B under the Development Licence, provided that where the Project is carried out by way of Separable portions, the parties must at the same time as agreeing on the Division of Portfolio, agree on an allocation of part of the adjustment to each settlement tranche proportionate to the value of the Dwelling units being transferred.

Where you are required to make a cash adjustment payment, the payment will also be additional consideration for the supply of the Lot.

The only other major determinant is whether the acquisition from Entity A is for a creditable purpose.

As outlined in Question 4 above, your supply of accommodation will be GST-free pursuant to section 38-250.

Consequently, to the extent that you make GST-free supplies, the acquisition of the Offer Lot from Entity A will be for a creditable acquisition.

Question 6

Upon you making a future supply of a Sale Lot to a third party:

(a) Will you make an input taxed supply under section 40-65?

(b) Will a Sale Lot be "new residential premises" under section 40-75?

(c) Will Division 129 apply to you when the extent of creditable purpose is changed?

Under subsection 40-65(1), a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, subsection 40-65(2) states that the sale is not input taxed to the extent that the residential premises are:

(a) *commercial residential premises; or

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input taxed credit for anything that is acquired to make the supply.

The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation, or is intended to be, and is capable of being, occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation).

In your case, the units constructed will be residential premises. According to the facts, that make up the arrangement on which this private ruling is based, the premises are not commercial residential and they were not used for residential accommodation before 2 December 1998.

The term 'new residential premises' has the meaning given by section 40-75, which in part states:

40-75 Meaning of new residential premises

When premises are new residential premises

(1) *Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease;

(b) …; or

(c) …

Paragraphs (b) and (c) have effect subject to paragraph (a).

Section 40-75 comprises further provisions which provide that certain supplies of residential premises are disregarded for the purposes of determining whether the premises have previously been sold as residential premises or the subject of a long term lease for the purposes of paragraph 40-75(1)(a).

Subsection 40-75(2B) of the GST Act

Subsection 40-75(2B) states:

(2B) A supply (the wholesale supply) of the *residential premises is disregarded as

a sale or supply for the purposes of applying paragraph (1)(a) if:

(a) the premises from which the residential premises were created had earlier been supplied to the *recipient of the wholesale supply or one or more of its *associates; and

(b) an arrangement (including an agreement) was made by:

(i) the supplier of the earlier supply, or one or more associates of the supplier; and

(ii) the recipient of the earlier supply, or one or more associates of the recipient; and

(c) under the arrangement, the wholesale supply was conditional on:

(i) specified building or renovation work being undertaken by the recipient of the earlier supply, or by one or more associates of the recipient; or

(ii) circumstances existing as specified in regulations made for the purposes of this subparagraph.

The Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No. 9) Act 2012 (EM) outlines the intention of subsection 40-75(2B) at paragraph 6.26 of the EM which states:

6.26 The intention of new subsection 40-75(2B) is to ensure that certain sales of newly constructed residential premises by a developer to home buyers and investors will be taxable supplies of new residential premises even though there may have been an earlier 'wholesale supply' of the premises. The earlier supply is disregarded for the purposes of determining whether or not residential premises are new residential premises if the residential premises have been constructed pursuant to a particular arrangement (including an agreement). The particular arrangement being an arrangement between a developer or builder and a land holder, whereby the developer or builder (or an associate of the developer or the builder) becomes entitled to the freehold or long term leasehold title in the premises conditional on specified building or renovation work being undertaken by the developer or builder.

Consequently, where the requirements of subsection 40-75(2B) are met, a supply (the wholesale supply) of newly constructed residential premises will be disregarded for the purposes of applying paragraph 40-75(1)(a) and a subsequent supply of those premises is a supply of new residential premises.

Firstly, paragraph 40-75(2B)(a) requires the premises from which the residential premises were created to have earlier been supplied to the recipient of the wholesale supply, or their associates. In this case, paragraph 40-75(2B)(a) is satisfied because the land from which the residential premises were created will have been previously supplied to you under a Development Licence.

Secondly, paragraph 40-75(2B)(b) requires that an arrangement (including an agreement) be made between the supplier of the earlier supply, or their associate, and the recipient of that earlier supply, or their associate. Here, paragraph 40-75(2B)(b) is satisfied as there is an arrangement between the supplier of the earlier supply (Entity A which granted the Development Licence) and the recipient of that earlier supply (you).

Lastly, paragraph 40-75(2B)(c) requires that under the arrangement the wholesale supply of the residential premises is conditional upon specified building or renovation work being undertaken by the recipient of the earlier supply (in this case, you). The wholesale supply in this case is the sale of the Offer Lots by Entity A to you.

The arrangement between you and Entity A is contained in the Development Licence entered into between the parties. This document sets out the requirements for this development including the specified building works (Annexure A to the Development Licence). The terms of the arrangement provide and are the source of conditions that, when satisfied, give rise to the grant of freehold titles on acceptance of a Sale Offer by you from Entity A.

The Development Works must be carried out in accordance with the requirements of all relevant Laws and Government Agencies and the relevant Development Documents agreed between the Licensor and Licensee under the Agreement for Licence and attached to Annexure A of the Development Licence.

The Sale Offers, which are a preamble to the ultimate purchase of the individual Offer Lots (the wholesale supply), are conditional on the specified development works being undertaken by you.

Clause X of the Development Licence deals with Irrevocable Offers and states:

Sale offer

In consideration of the Licensee carrying out the Development Works under clause X, within five Business Days after the date of a Final IC Notice in respect of the whole of, or the last part of, a Separable Portion, the Licensor must make an offer to the Licensee to sell the Offer Lots which form part of that Separable Portion the subject of the Final IC Notice, by giving to the Licensee:

(a) an Offer Notice; and

(b) a Sale Contract for each Offer Lot (in duplicate):

(i) completed with particulars of each Offer Lot and the purchase price in accordance with clause X; and

(ii) executed by the Licensor (Sale offer)

The objective of Entity B is the provision of social and affordable housing. To achieve this objective, you will purchase a number of residential lots, the outcome of which is dependent on the completion of the development works and receiving the Offers. Consequently, the wholesale supply of the residential lots by Entity A to you is disregarded as a sale or supply for the purposes of applying paragraph 40-75(1)(a) and the supply of a Developed Lots by you to a purchaser will be a taxable supply.

A Division 129 adjustment will not be required as the extent of creditable purpose has not changed.