Edited version of your written advice

Authorisation Number: 1051411146781

Date of advice: 3 August 2018

Ruling

Subject: GST and property developer in kind contributions.

Question 1:

Is the Entity making a taxable supply when making in kind contributions in obtaining a right to develop a land?

Answer:

No.

Question 2:

If the answer to question 1 is no, is the Entity entitled to a refund for the excess GST paid for the transaction in question 1?

Answer:

Yes, the Entity is entitled to a refund for the excess GST paid.

Relevant facts and circumstances

● The Entity is a GST registered property developer.

● The Entity lodged a property development application with the local Council.

● The application is for the re-configuration with a change of use of land.

● The application was approved by the local Council with the conditions requiring the Entity to pay certain charges.

● These charges are imposed based on a relevant State law.

● The Entity dedicated blocks of land to the local council as an alternative to pay these charges.

● The Entity reported and remitted the GST on the supply of the land.

● Both parties were aware that at the time of the transaction, there was no GST included in any of the consideration paid.

● The entity did not issue any tax invoice for the transaction.

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 division 82

A New Tax System (Goods and Services Tax) Act 1999 division 142

Reasons for decision

Question 1

The relevant law

Division 82 of the GST Act covers those in kind developer contributions that are made in lieu of a monetary contribution imposed under the relevant Australian law by government agencies. In the current case, if the contributions are covered by Division 82 of the GST Act, then the supply of such contributions is not a taxable supply which overrides the basic rules for taxable supplies contained in Section 9-5 of the GST Act.

Application of Division 82 to in kind developer contributions

Division 82 is concerned with those developer contributions which come within the definition of a supply (in kind contributions), made in return for the supply by an Australian government agency of a right to develop land.

Under Division 82, the supply of the right to develop land is not treated as consideration for the supply of the in kind contributions nor as a supply made for consideration if the supply of the in kind contribution complies with requirements imposed by, or under, an Australian law. In other words, neither the supply of the in kind contribution nor the supply of the right to develop land is a taxable supply where Division 82 applies.

In the present case, the Entity has made an in kind contribution by dedicating blocks of land to the local Council to comply with the requirements in the development approval to pay for the charges. To determine whether Division 82 can be applied to this in kind contribution, it needs to be established whether the contribution is made for complying with requirements imposed by or under an Australian law by an Australian government agency for the grant of right to develop land.

Australian government agency

An Australian government agency is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as:

● the Commonwealth, a State or Territory; or

● an authority of the Commonwealth or of a State or a Territory.

Parliament’s intention about the scope of the definition of Australian government agency in the context of the GST Act can be found in example 1.1 in the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 3) 2002 which identifies a local council as an Australian government agency for the purposes of applying Division 82. Further, the Treasurer’s Determination specified taxes and charges that specifically relate to local government.

For the purposes of Division 82, it is accepted that the local Council in this case comes within the definition of an Australian government agency.

Imposed under an Australian law

An ‘Australian law’ is defined in section 995-1 of the Income Tax Assessment Act 1997 and relevantly includes a State law. In the present case, the charges are imposed under a State law which comes within the definition of an Australian law.

The right to develop land

The concept of a right to develop land is not defined in the GST Act. However, paragraph 1.16 in the Explanatory Memorandum to Taxation Laws Amendment Bill (No. 3) 2002 explains that in respect of Division 82, the supply of a right to develop land includes an approval by an Australian government agency of such things as:

● a re-configuration with no change in use (subdivision)

● no re-configuration, but a material change in use (rezoning)

● re-configuration with use as a right (permitted subdivision), and

● re-configuration with a change of use (subdivision and rezoning).

In the current case, the development approval is for reconfiguration with change of use of land and therefore falls within the right to develop land that is covered by Division 82.

Based on the above, as the Entity has made an in kind developer contribution for complying with requirements imposed by or under an Australian law by an Australian government agency for the grant of right to develop land, such contribution is covered by Division 82 therefore the supply of making such contribution is not a taxable supply.

Question 2

As stated in question 1, the supply the Entity made by making the in kind contributions is not a taxable supply pursuant to Division 82 of the GST Act. However, the Entity has raised the GST liabilities on that transaction and included the amount on your Business Activity Statement. As such, excess GST has arisen.

To determine whether the Entity is entitled to a refund for the excess GST, Division 142 is relevant as it deals with refunds of overpaid GST and covers tax periods on or after 31 May 2014.

Division 142 operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient), and has not reimbursed that other entity for the passed-on GST. The object of Division 142 is to ensure that excess GST is not refunded if this would give an entity a windfall gain.

Division 142 may apply regardless of how the excess GST arose. For example, excess GST can arise as a result of a mischaracterisation, a miscalculation, or a reporting or administrative error.

Under Section 142-10 of the GST Act, an amount of excess GST will only be refundable if:

● it has not been passed on to the recipient, or

● it has been passed on to the recipient, and the recipient has been reimbursed.

If the excess GST has not been passed on, section 142-10 does not apply and the supplier may, subject to the period of review, request an amendment to their assessment for the relevant tax period to reduce the amount of GST attributable to that tax period. Any resulting refunds will be paid or applied in accordance with Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953.

In determining whether or not the excess GST has been passed on, regards need to be given to the following matters:

● the manner in which the excess GST arose

● the supplier's pricing policy and practice

● the documentary evidence surrounding the transaction, and

● any other relevant circumstances.

Having regard to the above, when examining the facts and surrounding circumstances of the current case, it is concluded that GST has not been passed on to the local Council in the transaction.

In particular, both parties were aware that at the time of the transaction, there was no GST included in any of the consideration paid and also, the fact that no tax invoice has been issued confirms the parties’ understanding that no GST was included in the transaction.

As the Entity has not passed on to the local Council any GST for the supply of the blocks of land therefore section 142-10 of the GST does not apply. This means that, subject to the period of review, the entity may request an amendment to your assessment for the relevant tax period to reduce the amount of GST attributable to that tax period. Any resulting refunds will be paid or applied in accordance with Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953.