Edited version of private advice

Authorisation Number: 1051951045183

Date of advice: 2 September 2022

Ruling

Subject: GST and Property

Question 1

Will the Development Works (collectively, the Building Works or Approved Development and Associated Works) undertaken by Entity A, pursuant to the Contract for Sale, Project Delivery Deed and draft Crown Lease (collectively referred to as the Transaction Documents) on the Land, be consideration pursuant to section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the taxable supply of the Land by the government entity to Entity A under section 9-5 of the GST Act?

Answer

To the extent any Associated Works, described in the Transaction Documents, automatically belong to a government agency or are transferred to a government agency, or a third party nominated by the government agency (whether on unleased land or Crown lease land), they will be consideration pursuant to section 9-15 for the taxable supply of the Land.

The following Development Works, undertaken by Entity A, are not consideration for the taxable supply of the Land by the government entity:

(a)           The building works.

(b)           The affordable housing dwellings.

(c)           Public car park.

(d)           The associated works which do not automatically belong to a government agency or are

transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land).

Question 2

Will Entity A make a taxable supply of development services, pursuant to section 9-5 of the GST Act, to the government entity, in completing the Development Works on the Land, pursuant to the Transaction Documents?

Answer

Entity A will make a taxable supply of development services pursuant to section 9-5 of the GST Act, to the government entity, to the extent any Associated Works, described in the Transaction Documents, automatically belong to a government agency or are transferred to a government agency, or a third party nominated by the government agency[1](whether on unleased land or Crown lease land),

Entity A will not make a taxable supply of development services to the government entity in respect of:

(a)          The building works.

(b)          The affordable housing dwellings.

(c)          Public car park.

(d)          The Associated Works which do not automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land).

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.

Entity A is registered for Goods and Services Tax (GST) and carries on a business of property development.

Commercial Contract for Sale (Contract)

On XXYYYY, Entity A entered into a Commercial Contract of Sale (the Contract) for the grant of a 99-year Crown lease for the Land from the government entity. The Completion Date of the Contract is expected in YYYY.

Under the Contract, the government entity agreed to grant or procure the grant of, a 99-year Crown lease to the Purchaser on completion of the Contract, on substantially the same terms as the Specimen lease annexed to the Contract.

The purchase price stated in the Contract is $X (including any GST payable) and completion of the Contract is expected in YYYY, at which time he government entity will be required to grant a Crown lease over the Land to the Purchaser.

It was agreed that the margin scheme apply to the supply of the Land.

The Contract is contingent upon the government entity and the Purchaser entering into the Project Delivery Deed (PDD) prior to or at the same time they entered into the Contract.

The Buyer acknowledges and accepts that restrictions on dealing with the Land apply until the Buyer has complied with its obligations under the PDD.

The Annexures attached to the Contract are:

•                     Annexure A: Special Conditions

•                     Annexure B: Specimen Lease

•                     Annexure C: Project Delivery Deed

•                     Annexure D: Background Document Schedule

•                     Annexure E: Block Details Plan

•                     Annexure F: Prescribed Conditions for Associated Works.

•                     Annexure G: Deed of Unconditional Undertaking

•                     Annexure H: Clearance Certificate

The Contract and Annexures form part of the relevant facts and circumstances.

Annexure C: Project Delivery Deed (PDD)

The PDD is dated XXYYYY.

Pursuant to the PDD, the Developer agrees that it will, in developing the Land, comply with the Developer's obligations set out in the PDD. The PDD includes schedules which outline additional specific obligations with which the Developer must comply (Background). The following Schedules are attached to the PDD:

•                     Schedule X: Details

•                     Schedule X: Affordable Housing Requirements

•                     Schedule X: Public Car Park

•                     Schedule X; Verges and Footpaths

The PDD essentially outlines the steps required to obtain development approval and protects government property, such as verges and footpaths during development.

Security is required for the performance of the Developer's obligations under the PDD in the form of an unconditional irrevocable bank guarantee from an Australian financial institution, bank cheque in favour of the government entity or insurance bond from an Australian Institution.

The Security Amount means an amount equal to $X.

Schedule X - Affordable Housing Requirements

The minimum number of Affordable Housing Dwellings that must be provided by the Developer on the land is X.

The Developer must offer for sale, in the manner consistent with the PDD, a number of Affordable Housing Dwellings which is no less than the Minimum Number of Affordable Housing Dwellings constructed (or to be constructed) on the Land during the term of the PDD.

Each Affordable Housing Dwelling must have at least X bedrooms.

The Developer must participate in a consultation with the government entity.

Within 7 Working Days of the Developer receiving Development Approval of a Development Application in respect of any improvements on the Land, identified as Affordable Housing by the Developer, the Developer must provide the government entity with a copy of the Development Approval and a plan of the Land identifying the location of all the Dwellings which are to be sold as Affordable Dwellings and draft affordable housing contracts.

Schedule X - Public Car Park

The minimum number of carparks which the Developer is required to provide is stipulated as follows:

●                   X car parks; or

●                   The amount of car parks specified in Clause X of the Crown Lease.

The term 'Works' is defined to mean:

All design, development and construction works the Developer must do to build a car park suitable for use as a Public Car Park with the Minimum Amount of car parks on the Land.

Within X years from Completion, the Developer must:

(1) Complete the Works; and

(2) Obtain a Certificate of Occupancy for the Works

Additional information provided

The car park will either be retained by Entity A or sold by Entity A to a third party.

Schedule X - Verges and footpaths

If the verges and/or footpaths adjacent to the Land are damaged during the term of the PDD, the Developer must repair the damage at its own cost, even if the damage was not caused by the Developer.

Annexure X - Prescribed conditions for Associated Works on the Land

Clause X provides that the (Crown) lease is conditional upon the Lessee (Entity A) designing and constructing, at the Lessees cost, works associated with the lease that are to become assets of a government agency.

Clause X provides that the associated works required are design and construction of:

(a)          a heavy duty concrete driveway;...

(b)          a sewer service to fully service the land;...

(c)          demolition of existing driveways and footpath;...

(d)          reinstatement of verge, pavement;...

(e)          X sqm of paved verge;...

(f)           X new hydrants;...

(g)          X new street trees, trees are to match the existing street trees;...

(h)          Verge works;...

(i)            Any other works required;...

all ancillary works and fittings required to complete the associated works.

Entity A must lodge a 'Deed of Unconditional Undertaking' in the amount of $X including GST prior to execution of the Lease.

Entity A will be responsible for practical completion of works within X months of the commencement of the Lease and prior to the occupation of the premises.

Practical completion of the Associated Works shall be deemed to have occurred when Entity A lodges the 'Certificates of Operational Acceptance' and the 'Provisional Certificate of Operation'.

Final Completion of the Associated Works shall be deemed to have occurred when Entity A lodges the 'Certificates of Final Acceptance' and the 'Certificate of Operation'.

Specimen Crown Lease (the Land)

The Crown lease is a market value lease.

The key terms of the Crown lease are:

•                     It commences on XXYYYY.

•                     The term is for X years.

•                     The Lessee is required to pay rent of X cents per annum.

•                     The lease outlines the purpose for which the premises may lawfully be used.

•                     The Lessee must undertake the following:

(a)  complete, within X months from the lease commencement date (or such further time approved by the government entity in writing), the erection of an 'approved development' on the land in accordance with plans and specifications prepared by the Lessee and previously submitted to and approved by the government entity in writing, and in accordance with all applicable laws and regulations.

(b)  complete within X months from the lease commencement date (or within such further time as may be approved by the government entity in writing), and prior to occupation of the premises, the:

(i) design and construction of a heavy-duty concrete driveway;

(ii) design and construction of a sewer service to fully service the land;

(iii) demolition of existing driveways and footpath;

(iv) design and reinstatement of the verges and pavements;

(v) design and construction of a X square metre paved verge;

(vi) installation of X new hydrants;

(vii) planting of X street trees to match the existing street trees;

(viii) completion of verge works;

(ix)         any other works required as a result of an audit on submitted plans for design approval.

including all ancillary works and fittings in accordance with the prescribed conditions for associated works and plans and specifications prepared by the Lessee and previously submitted to and approved by the government entity in writing.

(c) provide and thereafter maintain certain works on the land, to an acceptable standard and in accordance with previously submitted and approved plans and specifications, namely:

a. drained and sealed car parking area;

b.            Landscaping;

c.            facilities and access on the land for persons with a disability;

d.            maintain, repair and keep in repair the premises.

(d) and also:

a. not without the previous approval of the Authority in writing, except where exempt by law, erect any building, or make any structural alterations to any building, on the land;

b. preserve any tree that has been identified for retention during the period allowed for construction or to which the relevant Act applies;

c. screen and keep screened all service areas.

For clarity, in this private ruling, the above requirements at points (a) to (d) which the Lessee is required to undertake within a specified time period, are referred to as 'development works'. If the context requires, point (a) is referred to as 'approved development or building works' and points (b),(c) and (d) as 'associated works'.

The Crown lease may be terminated by the government entity in the following circumstances:

i.              Any rent or other moneys payable by the Lessee under the Crown lease remain unpaid for X months after the appointed payment date.

ii.             The Lessee fails to complete an approved development within the timeframe specified.

iii.            Associated works in accordance with Clause x of the lease are not completed within the period specified in the said Clause.

iv.            After completion of an approved development, the Land is not used for an approved purpose (specified in Clause X for at least one year).

v.             The Lessee fails to observe or perform any other covenants contained in the Crown lease and fails to remedy such breach within X months after the government entity serves the Lessee with written notice of the breach.

Subject to the Lessee paying all money required to be paid under the provisions of the relevant Act, the Lessee shall, at the expiration of the Crown lease, be entitled to a further lease of the Land for such further term and at such rent and subject to such conditions as may then be provided or permitted by the relevant legislation.

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 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

Reasons for decision

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.

•                     all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Summary

To the extent any Associated Works, described in the transaction documents, automatically belong to a government agency or are transferred to a government agency or a third party nominated by the government agency, whether on unleased land or Crown lease land, then such Associated Works will be consideration, pursuant to section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the taxable supply of the Land by the government entity to Entity A under section 9-5 of the GST Act.

The following development works, undertaken by Entity A, are not consideration for the taxable supply of the Land by the government entity:

(a)          The building works

(b)          The affordable housing dwellings

(c)           Public car park

(d)          The associated site works which do not automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land).

Detailed reasoning

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.

There are two elements to the definition of consideration, which are:

•                     the payment by one entity to another; and

•                     a nexus that must be established between the payment and a supply.

Goods and Services Tax Determination GSTD 2021/1 Goods and services tax: development works in the XXXX XXXX XXXX (GSTD 2021/1), provides advice on the GST treatment of arrangements between government agencies and private developers in the context of the development of land in the XXX.

GSTD 2021/1 considers whether building works carried out by developers on land they have acquired under a long-term Crown lease (Crown lease) and associated site works, have the necessary nexus and are therefore non-monetary consideration for the supply of that Crown lease by a government agency.

Considering the facts in your situation, the arrangement between the government entity and Entity A has the typical features of the arrangements outlined in GSTD 2021/1.

Undertaking the building works on the Land, pursuant to the Transaction documents, does not provide the government agency with anything of measurable economic value. For this reason, the construction of building works on the Land is not the provision of non-monetary consideration for the government entity's supply of the Land.

Associated works

Paragraph 46 of GSTD 2021/1 discusses associated works retained by, or transferred to, a government agency. It states:

However, the outcome is different if associated site works are retained by, or transferred to, the government agency or a third party nominated by the government agency (whether on unleased land or the Crown lease land).

Performing these works involves the provision of something of measurable economic value to the government agency, because the government agency would otherwise have had to pay to have these works constructed.

There is sufficient nexus between the works where the arrangement makes the supply of the land conditional on the developer completing the specified works.

Pursuant to the Transaction Documents, the Crown lease is conditional upon Entity A designing and constructing at Entity A's cost, works associated with the Crown lease that are to become assets of respective government agencies.

The completed associated works that automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or Crown lease land) are considered non-monetary consideration for the taxable supply of the Land by the government entity.

Should any completed associated works be retained by Entity A, they are not non-monetary consideration for the supply of the Land by the government entity. This is because any associated works retained by Entity A provide no measurable economic value to the government entity.

The value of the non-monetary consideration is determined in accordance with the principles set out in GSTR 2001/6.

Affordable housing requirements and public car park

Entity A must offer for sale a number of affordable housing dwellings during the term of the arrangement and must also construct a public car park.

The obligations to provide affordable housing and construct a public car park, are merely restrictions on the type of development undertaken, in the similar way that a government agency can impose height limitations on the building or requirements for external finishes.

Such limitations on the leasehold do not demonstrate that something is provided to the government agency as consideration for the grant of the lease. Performance of these obligations does not result in the works creating the affordable housing dwellings and public car park being provided as non-monetary consideration for the grant of the Crown Lease.

Question 2

Summary

Entity A will make a taxable supply of development services pursuant to section 9-5 of the GST Act, to the government entity, to the extent any Associated Works, described in the Transaction Documents, automatically belong to a government agency or are transferred to a government agency, or a third party nominated by the government agency (whether on unleased land or Crown lease land),

Entity A will not make a taxable supply of development services to the government entity in respect of:

a)            The building works.

b)            The affordable housing dwellings.

c)            Public car park.

d)            The Associated Works which do not automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land).

Detailed reasoning

Section 9-5 provides that you make a taxable supply if:

•                     you make the supply for consideration

•                     the supply is made in the course or furtherance of on enterprise that you carry on

•                     the supply is connected with the indirect tax zone (Australia), and

•                     you are registered or required to be registered for GST.

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

Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) states:

By providing non-monetary consideration for a supply, you are in turn making a supply....

As set out in Question 1, the completion of the building works, affordable housing dwellings and the associated works (except for the associated works that automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land) are not additional non-monetary consideration for the supply of the Land.

Consequently, there is no supply by Entity A to the government entity in respect of the building works, affordable housing dwellings and the associated works which do not automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or the Crown lease land).

In respect of associated works which are not retained by the Developer (for example hydraulic mains, stormwater drains and sewer lines) and that automatically belong to a government agency or are transferred to a government agency, or a third party nominated by a government agency (whether on unleased land or Crown lease land), the associated works represent something that the government entity would usually or commercially pay money to acquire and have a measurable economic value.

In the case of the associated works which are not retained by the Developer, non-monetary consideration is provided by Entity A for the supply of the Land by the government entity.

Therefore, as Entity A will be making a supply of the associated works not retained by Entity A to the government entity, the requirements of section 9-5 will be satisfied as:

•                     the supply will be for consideration

•                     the supply will be connected with Australia

•                     Entity A will be making a supply in the course of its enterprise

•                     Entity A is registered for GST

•                     the supply will not be GST free or input taxed.

Further information

Valuing non-monetary consideration

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) provides guidance on valuing non-monetary consideration.

For further information, see paragraphs 138 - 158 of GSTR 2001/6 which discusses the reasonable valuation of non-monetary consideration.

[1] For example, an entity that is licensed to provide a utility service - see Part 3 of the Utilities Act 2007 (ACT).