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Edited version of your written advice
Authorisation Number: 1013082268752
Date of advice: 14 September 2016
Ruling
Subject: GST and Compulsory acquisition
Question 1
Is the compulsory acquisition of your land a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. You are not making a taxable supply because not all the requirements of section 9-5 of the GST Act are satisfied for the following reasons:
Your land was compulsorily acquired and your interest in the land was vested in the government authority without you taking any action to transfer your interest in the land. The specified legislation compulsorily enforces the transfer.
Accordingly, you are not a making a supply and the requirement of paragraph 9-5(a) of the GST Act is not satisfied.
Question 2
Do the terms of the deed of settlement between you and the acquirer give rise to a taxable supply under the GST Act?
Answer
No. You are not making a taxable supply because not all the requirements of section 9-5 of the GST Act are satisfied for the following reasons:
The compensation amount is to settle your claim for additional compensation arising out of the compulsory acquisition. The compensation amount comprises your interest in the land, disturbance, interest and contribution towards consultants and legal costs.
Paragraph 111 of Goods and Services Tax Ruling GSTR 2001/4 discusses payments made under an out-of-court settlement to resolve a damages claim. It states:
111. If a payment is made under an out-of-court settlement to resolve a damages claim and there is no earlier or current supply, the payment will be treated as payment of the damages claim and will not be consideration for a supply at all, regardless of whether there is an identifiable discontinuance supply under the settlement.
As outlined in Question 1 you are not making a supply when its interest is vested in the government authority as a result of the government authority initiating the compulsory acquisition process. Hence, the compensation amount is not consideration for an earlier supply.
There is no new supply created by the terms of the settlement agreement. Hence, the compensation amount is not consideration for a new supply.
The compensation amount is treated as payment of the damages claim and is not consideration for any supply made by you.
In accordance with paragraph 148 of GSTR 2001/4, the payment to reimburse you for costs incurred in the dispute is essentially a payment of compensation and is treated in the same manner as damages.
Accordingly, the requirement of paragraph 9-5(a) of the GST Act for there to be a supply for consideration is not satisfied.
Relevant facts and circumstances
You are registered for GST.
Prior to the acquisition, you held an equitable interest in the land.
The government authority compulsorily acquired your interest in the land.
Prior to the compulsory acquisition the government authority made attempts to negotiate an agreement with you to acquire the land. No agreement was reached.
An offer of compensation was made by the government authority to you.
You disputed the compensation provided in the offer.
You commenced legal proceedings against the government authority for additional compensation arising out of the acquisition.
This action was defended by the government authority.
You and the government authority intend to settle this dispute.
The Deed of Settlement entitled you to a compensation payment of $XXX, apportioned in the following way:
• Interest in the land- $XXX
• Disturbance - $ XXX
• Interest - $XXX
• Consultant's legal costs - $XXX
• Less previous payments - $XXX
The deed of settlement states that the additional compensation is in full and final satisfaction and discharge of:
• all of the rights of you for compensation relating to the compulsory acquisition; and
• all and any claim howsoever arising which you has or may in the future have (whether known or anticipated or not) against the government authority or against any of their employees or agents arising out of, or in any way connected with the compulsory acquisition.
The deed of settlement states that you release and discharge the government authority from any claim arising out of or in any way connected with the compulsory acquisition.
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999
Section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999