Edited version of private advice

Authorisation Number: 1051751497541

Date of advice: 10 September 2020

Ruling

Subject: GST and the transfer of land

Question

Did the entity make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it entered into an agreement to receive a transfer of land?

Answer

No, the entity did not make a taxable supply as there is no consideration for any supplies it made under the agreement.

This ruling applies for the following periods:

All tax periods 1 January 20XX and following

Relevant facts and circumstances

The entity is registered for GST and has entered into an agreement whereby it will receive a transfer of real property.

The agreement provides that the entity will not pursue, or will cease to pursue other legal avenues to obtain custodianship of the property.

Neither party to the agreement provide monetary consideration under the agreement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, Division 9.

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity makes a taxable supply if:

·         It makes a supply for consideration; and

·         the supply is made in the course or furtherance of an enterprise that it carries on; and

·         the supply is connected with the indirect tax zone; and

·         the entity is registered, or required to be registered; and

·         the supply is neither GST-free, nor input taxed.

When the entity entered into the agreement, it agreed not to pursue, or to cease to pursue other legal avenues available to it to seek transfer of the property. This is arguably a supply of the surrender of a right made by the entity and satisfies the definition of 'supply' under section 9-10 of the GST Act. As the other requirements of section 9-5 are met, the supply will be a taxable supply if it is a 'supply for consideration'.

A supply is for consideration if the supplier receives something of economic value in return for the supply. Whilst there is no doubt that the entity receives the land, that does not necessarily mean that the land is consideration for the entity's supply of the agreement to not pursue a claim for that land (or its agreement to withdraw any claim already lodged). The Goods and Services Tax Ruling, Goods and services tax: non-monetary consideration (GSTR 2001/6) explains the Commissioner's views in regard to what non-monetary 'consideration' is and states:

80. ... 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.

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

83. Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular, the true character of the transaction may characterise the payment as a condition of the contract rather than the provision of non-monetary consideration. For example, in many cases, agreeing to enter into a contract to receive a supply for a specific period of time is not non-monetary consideration for that supply.

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

85. Non-monetary consideration needs to have a clearly independent identity. Obligations that are essentially another way of describing the consideration do not have a separate existence. For example, the obligation to pay money does not exist separately from the payment of money for the purposes of identifying the consideration. Also, in most cases, the use of a particular method of payment is not consideration. For example, where a supply is made for a lower price if a customer uses a credit card, the use of the credit card is not non-monetary consideration.

Under the agreement, the land is not being provided as compensation for the entity's agreement not to pursue its legal entitlements through other legal avenues. The land is not being transferred to the entity in return for the surrender of a right but is being done to give effect to the agreement. Paragraph 180B of the Goods and Services Tax Ruling,. Goods and services tax: supplies (GSTR 2006/9) refers to the decision by the Full Federal Count in AP Group Limited v. Commissioner of Taxation [2013] FCAFC 105 when explaining that, even though consideration is defined widely, not all exchanges between parties are relevant:

180B. Further, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

The transfer of the land is not made in return for the entity's claims to be discontinued. As such, there is no consideration provided to the entity as compensation for its supply of the surrender of its rights.

As there is no consideration for the supply made by the entity when it entered into the agreement,, it did not make a taxable supply under section 9-5 of the GST Act.