Edited version of private advice

Authorisation Number: 1051986927516

Date of advice: 1 June 2022

Ruling

Subject: Goods and services tax

Question 1

Is the sale of residential premises located in the indirect tax zone (the Apartments) by Entity A (you), a subsidiary of Entity B, a GST-free supply under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No

Question 2

If the answer to Question 1 is no, does the Goods and Services Tax: Particular Attribution Rules Where Total Consideration is Not Known Determination 2017 (PAR 2017/8) apply to defer the attribution of GST on part of the monetary consideration for the supply of the Apartments, where the amount of that monetary consideration depends on the happening of a future event?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Entity A is a subsidiary of Entity B. Entity A is a company that is registered for GST and accounts for GST on an accruals basis. Entity A is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC) and will be seeking endorsement as a charity under section 176-1 of the GST Act.

Entity B is a registered charity with the ACNC. It is a public benevolent institution endorsed to access certain GST concessions, income tax and FBT exemptions and is also endorsed as a Deductible Gift Recipient by the Commissioner.

Entity A and Entity B will not utilise the GST grouping or branching provisions.

Entity B's objective is to create vacancies within the social housing portfolio for occupation by those on the waiting list for social housing. Entity B intends to achieve this objective by developing residential apartments through Entity A for sale to tenants of social housing, enabling these purchasers to purchase their own homes and thus vacate their current social housing dwelling for occupation by those on the waiting list for social housing.

The Purchase Contract and development of the Apartments

On DD/MM/YYYY, Entity C entered into a contract (the Purchase Contract) with X to purchase property located in the indirect tax zone for $X plus GST. The purchase is intended to be a fully taxable supply without the application of the margin scheme. The Purchase Contract has not settled to date.

On DD/MM/YYYY, Entity C nominated Entity A to be the purchaser in the Purchase Contract pursuant to an executed copy of the "Sale of real estate Nomination form". Clause X of the General Conditions of the Purchase Contract provides that Entity C may nominate a substitute or additional transferee, but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under the Purchase Contract.

The Purchase Contract has a number of Special Conditions and contains a copy of the Agreement X between the Council, X and Entity C. The Special Conditions of the Purchase Contract provide the following definitions:

•         "Affordable Housing" has the meaning given in X of the X.

•         "Affordable Housing Dwelling" means a Dwelling for Affordable Housing on a Lot in the Project which is to be sold to an Affordable Housing Purchaser.

•         "Affordable Housing Purchaser" means a purchaser of an Affordable Housing Dwelling, who:

                                          i.    meets the income requirements at X;

                                         ii.    is a citizen or permanent resident of the Commonwealth of Australia;

                                        iii.    intends to use the purchased Dwelling as their Principal Place of Residence; and

                                       iv.    is not the registered or beneficial owner of any other residential property in Australia

•         "Land" means the land referred to in the Particular of Sale.

•         "Market Dwelling" means an apartment that is not an Affordable Housing Dwelling and is to be sold to the general public.

•         "Project" means the development to be carried out on the Land by or on behalf of the Purchaser pursuant to the Planning Permit for the dominant purpose of the provision of the Affordable Housing.

•         "Section X Agreement" means an agreement to be entered into between the Purchaser, the Vendor, and the Responsible Authority under X of the X, which will regulate the Purchaser's use and development of the Land in various respects, in the form annexed to this contract as Attachment X.

Other relevant clauses in the Special Conditions of the Purchase Contract include:

• Clause X provides, among other things, the Purchaser agrees to develop a minimum of X Affordable Housing Dwellings on the Land.
• Clause X provides that the parties agree that the Price listed in the Particulars of Sale is based on the premise that the Purchaser will construct the Project with a net saleable area of Affordable Housing Dwellings of X square meters (Base NSA).
• Clause X provides that to account for any additional residential net saleable area to be constructed in the Project exceeding the Base NSA, the parties agree to increase the Price (Price Adjustment):

a.    where the net saleable area of all Affordable Housing Dwellings in the Project exceeds the Base NSA, by $X for every additional square metre above the Base NSA; and

b.    by $X for every square metre of the net saleable area of all Market Dwellings in the Project, to be payable at settlement.

• Clause X provides the Purchaser may enter into off the plan contracts of sale for dwellings to be developed under the Project with third party purchasers prior to settlement of this contract, provided that settlement of such contracts is subject to settlement occurring under this contract.
• Clause X provides that the Land is sold subject to the Purchaser's obligations under Agreement X.

A planning permit has been obtained and construction is anticipated to commence in MM/YYYY.

The development will include Affordable Housing Dwellings only. Each of the Affordable Housing Dwellings developed on this land is an 'Apartment' for the purposes of this ruling.

Entity A's costs to build the Apartments will be funded by loans to Entity A from commercial lenders and Entity B, which will either use its own funds it has received as donations or from external borrowings as the case may require.

The Contracts of Sale

Entity A will identify prospective purchasers to enter into contracts to purchase the Apartments. These purchasers will be individuals/families currently living in low-cost social housing provided by the State Government or registered community housing providers. Additional eligibility requirements may be imposed in identifying prospective purchasers.

Entity A and the purchaser will enter into a Contract of Sale for the sale of an Apartment. The purchase price for the Apartment stated in the Contract of Sale will be a fixed amount, which will be equal to X% of the GST inclusive market value of your supply of the Apartment to the purchaser under this arrangement.

The purchase price under the Contract of Sale will be payable as follows:

          i.    Deposit equal to X% of the GST inclusive market value of the supply of the Apartment, payable on entry into the Contract of Sale.

         ii.    Balance equal to X% of the GST inclusive market value of the supply of the Apartment, payable at settlement (expected to be funded by the by way of a bank loan secured by a mortgage over the Apartment).

Entity A has not provided a copy of the proposed Contract of Sale for the Apartments to the Commissioner.

The Obligation Deed

Entity A has stated that the purchasers will be encouraged to retain the Apartments for at least the medium term and not immediately sell these Apartments for a windfall gain. However, despite this there will be no restriction on the purchaser's ability to sell the Apartment after settlement.

Instead, the purchaser will enter into an Obligation Deed. The Obligation Deed states the purchaser agrees to enter into the Obligation Deed concurrently upon the execution of a Contract of Sale for the Apartment (Recital X).

Under the Obligation Deed:

•         the purchaser agrees to make a donation to Entity B equal to X% of the proceeds from a future sale of the Apartment (or, at Entity B's discretion, X% of the GST inclusive market value of the Apartment at the time of the future sale) if the Apartment is sold by the purchaser within X years of the execution of the Obligation Deed (clauses X and X, Recitals X and X)

•         if the Apartment is not sold within X years of the execution of the Obligation Deed, then the obligation to make a donation ceases, such that no amount is required to be paid to Entity B

• the purchaser charges all of its right, title and interest in the Apartment in favour of Entity B as security and credit support for the payment under the Obligation Deed (clause X).
• Entity B may record a caveat on the title to the Apartment recording its interest as a charge, which will only be withdrawn on payment of the entire donation to Entity B as cleared funds (clause X)
• the purchaser acknowledges that it is required to surrender its lease in current social housing occupied within X days of settlement of the Apartment in consideration of Entity A selling the Apartment at below GST inclusive market value (Recital X).

A copy of the X Obligation Deed Poll - Draft Term Sheet is attached as Appendix A and it forms part of the facts of this ruling.

Entity A has stated that the Obligation Deed is designed to make the arrangement, which is the subject of this ruling request, viable.

You have provided a worked example of the above arrangements, assuming a GST inclusive market value of $X for the supply of the Apartment, as follows:

(a) The Contract of Sale between Entity A and the purchaser will state a purchase price of $X, comprised of a deposit equivalent to X% of the GST inclusive market value ($X) and a balance payable on settlement equivalent to X% of the GST inclusive market value ($X).

(b) The purchaser will enter into an Obligation Deed whereby it agrees to donate X% of the proceeds from the future sale of the Apartment to Entity B if the Apartment is sold within the X-year time frame

Valuation

On the basis of the worked example described above, Entity A has provided a valuation of the discounted value of the purchaser's payment to be made in future under the Obligation Deed as being X% of the GST inclusive initial market value of the Apartment. The valuation is attached at Appendix B.

APPENDIX A - Obligation Deed

APPENDIX B - Valuation - DD/MM/YYYY

Assumptions

Entity A will be endorsed as a charity for GST purposes under section 176-1 of the GST Act prior to the first sale of an Apartment to a purchaser.

Entity A will issue an invoice at settlement for the amount payable to it under the Contract of Sale.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Division 9

Section 29-5

Section 29-25

Section 38-250

Section 176-1

Section 195-1

Reasons for decision

Question 1

Section 9-40 provides GST is payable on taxable supplies.

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 (Australia), 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 you will receive consideration for the sale of the Apartments which will be located in Australia. In addition, you are registered for GST and in your situation the sale of the Apartments will not be input taxed.

Therefore your supply of the Apartments will be taxable supplies unless they are GST-free.

For the purposes of this ruling we accept that the supply of the freehold interest in the Apartment to the purchaser will be a supply of accommodation by an endorsed charity as defined in section 176-1, for purposes of section 38-250.¹

The issue to be considered is whether the supply by you of the Apartments under this arrangement satisfies the requirement in subparagraph 38-250(1)(b)(i) of the GST Act, which provides:

(1) A supply is GST-free if:

(a) ...

(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; ...

Section 195-1 defines 'consideration':

consideration, for a supply or acquisition, means any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition.

Sections 9-15 and 9-17 include the following relevant subsections:

9-15 Consideration

(1) 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.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

...

9-17 Certain payments and other things not consideration

...

(2) Making a gift to a non-profit body is not the provision of consideration.

...

The GST Act recognises that consideration may be monetary consideration or non-monetary consideration. In particular, the meaning of 'price' given in section 9-75 is:

price is the sum of:

(a) so far as the *consideration for the supply is consideration expressed as an amount of *money - the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as an amount of money - the *GST inclusive market value of that consideration.

Relevant case law and public rulings on consideration

Sufficient nexus required

'Consideration' is a broad concept for GST purposes² and includes the money or value passing which moves the conveyance or transfer.³

Paragraph 38-250(1)(b) uses the phrase 'supply is for consideration' in the context of needing to determine a specific amount of consideration for the supply. This reflects the equivalent requirement in the definition of 'taxable supply' - that an entity makes a 'supply for consideration'.⁴

For there to be a 'supply for consideration' there must be a sufficient nexus between a particular payment and a particular supply.⁵ This recognises the close coupling that is required between a supply and consideration.⁶

Regard must be had to the true character of the transaction, looking at all of the transactions entered into and the circumstances in which the transactions are made.⁷ It is an objective test.⁸

This is like questions of characterisation where it is necessary to consider the entire factual matrix and not just the terms and conditions of the contract.⁹

The majority of the High Court in Commissioner of Taxation v Qantas Airways Limited stated that in the phrase 'supply for consideration':

the word "for" is not used to adopt contractual principles. Rather, it requires a connection or relationship between the supply and the consideration.¹⁰

In AP Group Limited v Commissioner of Taxation Edmonds and Jagot JJ stated:

The consideration must be "in connection with" the supply but the supply must also be "for" the consideration. "For", in this context, means "in order to obtain" (Macquarie Dictionary Online, item 3, Oxford Dictionary Online item 9(a)). The word "for" thus functions in the statutory description to identify the character of the connection which is required. It ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply. If it were otherwise, any form of connection of any character between the making of a supply and the payment of consideration would suffice.¹¹

Edmonds and Jagot JJ recognised, in confirming the approach of the Tribunal, that a tenuous or remote connection is not sufficient, and the test is not simply a 'but for' test.¹² All aspects of the arrangements between the parties have to be considered.¹³ Selection of the appropriate level of generality or particularity at which the assessment is to be carried out is fact-dependent.¹⁴

Consideration can be paid to a third party

In Re Keenhilt Pty Ltd (as trustee for the CHC Services Trust) and Commissioner of Taxation¹⁵ the Tribunal held that the law does not require that the payment is made to the supplier to be consideration.¹⁶ In that case payments were made to a related party's account. The Tribunal considered:

In its submissions, the applicant pointed out the payments made by the Chas Stewart Family Trust - the principal example of an NVI scheme offered by the respondent - were credited to the account of another trustee company involved in the arrangement. That does not matter. The law does not require that the payment be made to the person supplying the service. It merely requires that the payment (in this case, the 'fees' referred to in the applicant's diagram at p 356 of the T-documents) be paid in connection with the supply. Mr Collie accepted in his evidence that he and Mr Hart would not proceed to execute all of the documents required to bring a particular NVI arrangement into life unless the client paid the money contemplated under the terms of the arrangement into the Cleary Hoare solicitors trust account. If one has regard to the commercial reality of the situation, it is clear clients realised they were not able to participate in the fruits of the arrangement if they did not pay the fee as required. The fee was the price of participation. Whether or not the fee ended up in the CHC Services Trust, it was clearly paid in connection with (in the sense it was related to, or has to do with) the supply of the procuration and facilitation services I have already found the CHC Services Trust provided.

The same conclusion has been reached for the definition of 'consideration' in section 2 of the New Zealand Goods and Services Tax Act 1985, which is in similar terms. In The Trustee, Executors & Agency Company New Zealand Ltd v Commissioner of Inland Revenue,¹⁷ a case that involved the payment of rates by a lessee direct to a rating authority, where the legal obligation to pay fell on the lessor, Chisholm J stated:

But in my opinion the crucial factor is the strength of the connection between the payment and the supply. If there is sufficient proximity between the supply and payment to satisfy the requirement that the payment is "in respect of" (or "in response to, or for the inducement of") the supply of goods then the payment qualifies as "consideration" notwithstanding that the payment is made to a third party.¹⁸

This view is reflected in the Commissioner's public rulings.¹⁹

Monetary vs non-monetary consideration

The distinction between monetary and non-monetary consideration is simply based on whether the consideration is 'expressed as an amount of money'.²⁰

Subsection 9-75(1) sets out that when establishing the value of a supply for GST purposes, we look at the 'price' to which GST is applied, and price is the sum of consideration expressed as an amount of money and, where not expressed as an amount of money, the GST inclusive market value of that consideration.

A promise to pay an amount of money is consideration expressed as an amount of money.²¹ The obligation to pay money does not exist separately from the payment of money for the purposes of identifying the consideration.²²

An amount of money to be paid in the future is monetary consideration, not non-monetary consideration. GSTR 2001/6 expresses the view:²³

Consideration in the form of money, to be paid at a future time, is consideration expressed as an amount of money under subsection 9-75(1). The consideration is not the right to receive that money. For example, A agrees to supply goods to B in return for $10,000 to be paid 12 months after the date when the goods are delivered. The consideration is $10,000 and is expressed as an amount of money. The consideration is not the net present value of the $10,000.

Furthermore, paragraph 44 of GSTR 2001/6 explains that the words 'an amount of money' do not require that a final amount of money is known as at any particular time, such as when the agreement is executed. This is expressly contemplated in paragraph 29-25(2)(e)²⁴, which allows the Commissioner to make a determination regarding the attribution of GST and input tax credits where a supply or acquisition occurs before the supplier or recipient knows the total consideration. PAR 2017/8 Goods and Services Tax: Particular Attribution Rules Where Total Consideration is Not Known Determination 2017 addresses this scenario.²⁵

Whether excluded from consideration as a gift to a non-profit body

If a payment is a gift to a non-profit body, then it is not consideration.²⁶

The term 'non-profit body' is not defined for the purposes of the GST Act so takes its ordinary meaning in the context in which it appears. A body is a non-profit body if, by operation of law (for example, a statute governing a body's activities) or by its constituent documents, the body is prevented from distributing its profits or assets amongst its members while the body is functional, and on its winding-up.²⁷

The term 'gift' is also not defined. It takes its ordinary meaning having regard to the context in which it appears. It is considered that a gift has the following characteristics and features:

•         there is a transfer of a beneficial interest in property;

•         the transfer is made voluntarily;

•         the transfer arises by way of benefaction; and

•         no material benefit or advantage is received by the giver (payer) by way of return.²⁸

The courts have recognised that the criteria may not be absolute and may involve a matter of degree.²⁹

In determining whether a transfer is a gift it is necessary to consider the whole of the circumstances surrounding the transfer and this may include consideration of parties other than the giver and the recipient. It is the substance and reality of the transfer that has to be ascertained. It is therefore necessary to take account of those acts, transactions, arrangements and circumstances that provide the context and the explanation for the transfer.³⁰ A material benefit or advantage may come from someone other than the transferee.³¹

Application to the facts of the present case

Amounts payable under the Contract of Sale

Under the Contract of Sale, a purchaser pays a deposit equal to X% of the GST inclusive market value of your supply of an Apartment under this arrangement, payable on entry into the contract, and a balance equal to X% of the GST inclusive market value of your supply of the Apartment, payable at settlement.

These amounts are clearly consideration for the supply of the Apartment.

Amount payable under the Obligation Deed

Under the Obligation Deed, purchasers agree to pay an amount to Entity B when the Apartment is subsequently resold by the purchaser. This obligation is extinguished if the Apartment is not sold within X years of the Obligation Deed being entered into. The amount payable under the Obligation Deed is equal to X% of the later sale price of the Apartment (or at Entity B's discretion X% of the then market price of the Apartment such market price being determined by an independent valuer appointed and paid for by the Donee).

Whether this payment is part of the consideration for the supply of the Apartment depends on whether there is a sufficient nexus between the supply and the payment. The total facts and circumstances of the arrangements must be considered.

The fact that the payment is made to Entity B, and not Entity A, of itself does not mean the payment is not consideration for the supply made by you.³² This is not a case where Entity A is entitled to the payment but it is paid to a third party by direction. However, a payment made to a third party, even where Entity A has no entitlement to the payment, may still be sufficiently connected with your supply. The fact that the payment is made to a third party is merely one factor to be considered in assessing whether there is a sufficient nexus.

Each of the respective agreements is between two parties - the Contract of Sale being between Entity A and the purchaser, and the Obligation Deed being between Entity B and the purchaser. However, the recitals to the Obligation Deed expressly acknowledge that the Obligation Deed is entered into in the context of the Contract of Sale.

Furthermore the purchaser agrees to enter into the Obligation Deed concurrently with the execution by the purchaser of the Contract of Sale. This makes it clear that you will not supply the Apartment unless the purchaser has executed both the Contract of Sale and the Obligation Deed.³³ Conversely, it is clear that the purchaser would not otherwise be required to enter into the Obligation Deed but for the purchaser acquiring the Apartment from you on the particular terms of the Contract of Sale.

This demonstrates that the purchase price under the Contract of Sale is only set at X% of the GST inclusive market value of Entity A's supply of the Apartment because they enter into the concurrent obligation to pay the amount under the Obligation Deed. The purchaser's agreement to make the donation is part of what moves the transfer.

Entity B's entitlement to be paid an amount under the Obligation Deed will also be protected by way of registering a caveat on the title to the Apartment and the purchaser charging 'all of its right, title and interest in the Apartment in favour of the Donee as security and credit support for payment of the Donation'.³⁴ This fact also demonstrates the close link between the payment under the Obligation Deed and the purchaser's acquisition of the Apartment.

It is also noted that there is a close relationship between Entity A and Entity B. Entity A is a subsidiary of Entity B. Entity B engages Entity A to build the apartments for sale to social housing tenants. It has also been stated that the development will be funded by loans to Entity A from commercial lenders and Entity B.

All these factors together show a close and direct connection between the supply of the Apartments by you and the payment to Entity B under the Obligation Deed. It is much more than a tenuous or remote connection. Entity A will not make the supply unless the purchaser agrees to make the donation to Entity B under the Obligation Deed. It is a sufficient connection for the payment to be consideration for the supply of the premises to the purchaser.

Whether excluded from consideration as a gift to a non-profit body

In the present case the substance and reality of the circumstances surrounding the purchase of the premises and entry into the Obligation Deed need to be considered, as outlined above. The label given to the payment by the parties (that is, a 'Donation') is not determinative. The recitals to the Obligation Deed make it clear that the purchaser acknowledges they will be entering into the Contract of Sale for 'significantly below market value' and that they agree to pay Entity B a further amount upon any future sale occurring within X years.

Furthermore, Entity B records a caveat on the title which is only withdrawn upon the payment of the Donation in cleared funds.³⁵ In the context of the overall arrangements and transactions it is clear that the Donation is not being made by way of benefaction or detached and disinterested generosity but because of the material advantage and benefit the purchaser obtained under the Contract of Sale. Rather the payment is made by the purchaser because of the obligation to pay, which arises as a practical condition to being able to acquire the Apartment for a reduced rate at the time of settlement.

In conclusion, the Donation under the Obligation Deed is not a 'gift'. The payment is not excluded from being consideration by subsection 9-17(2).

Is the consideration provided under the Obligation Deed monetary consideration?

While the term 'expressed as an amount of money' is used in section 9-75 for the purposes of determining the 'price' and therefore the 'value' of a supply, the concept of monetary and non-monetary consideration applies more broadly in the context of the overall scheme of the GST Act. The defined term 'consideration' is used throughout the GST Act and it is critical to many key GST concepts, including establishing a taxable supply³⁶ and its value, and determining the tax period in which GST payable on a taxable supply is attributable.³⁷ Unless the context suggests otherwise, the concept of consideration should have a consistent meaning throughout the GST Act.³⁸ This requires the principles relevant to identifying the nature of consideration provided, the time at which is provided and its value to be applied consistently, including the inherent distinction between monetary and non-monetary consideration.

After a purchaser enters into the Obligation Deed there will be a presently existing obligation to make a payment of a specified amount of money and the liability will arise at a future time.³⁹

The Obligation Deed sets out a method of calculation to ascertain the amount payable to Entity B.⁴⁰ That payment must be made in 'cleared funds' by way of direction from the settlement monies on a subsequent sale of the Apartment.⁴¹ It constitutes consideration 'expressed as an amount of money' and is always intended to be a monetary amount.

Recital X in the Obligation Deed and the percentage provided in the private ruling application together provide that:

The Donor:

agrees and pledges that it will upon any sale of the Apartment by the Donor, bestow and pay to the Donee an amount equal to either, at the Donee's discretion, X% of the sale price of the Apartment, or X% of the then market price of the Apartment, such market price being determined by an independent valuer appointed and paid for by the Donee (the Donation).

Therefore, the further payment by the purchaser to Entity B will be monetary consideration for the supply of the Apartment. Even though there is a contingency that must be satisfied before payment is made under the Obligation Deed, this does not prevent it being monetary consideration. As noted above, the fact that the amount or timing of the payment of further consideration may be unknown at the time of the supply is expressly contemplated by section 29-25, and the attribution rule under PAR 2017/8 is consistent with the consideration being the amount of money paid or received at the later time, rather than the right to that amount being (non-monetary) consideration received at the time the right is created.

Similarly, the fact that the obligation ceases if there is no future onward sale to trigger a further payment within X years of the execution of the Obligation Deed does not affect the consideration being 'expressed as an amount of money'. Therefore, the amount payable on satisfaction of the contingency under the Obligation Deed is monetary consideration (and consequently entry into the Obligation Deed is not non-monetary consideration), as the future amount payable is expressed as an amount of money.

Therefore, it is unnecessary to consider what would be the GST-inclusive market value of any non-monetary consideration or the validity of the valuation provided by you in relation to the GST inclusive market value of the obligation under the Obligation Deed. However, we note that in preparing the valuation, a 'discount rate' of X% has been used. This rate appears to be based on a profit and risk factor, rather than a more appropriate discount rate - e.g. one that would be used to ascertain the net present value of the future amount paid under the Obligation Deed. As such, even if the obligation under the Obligation Deed were non-monetary consideration, the valuation provided by you is unlikely to reflect the GST-inclusive market value of the obligation.

Is the consideration less than 75% of GST-inclusive market value of the supply?

Having identified the relevant consideration, it is necessary to determine whether the supply of the Apartment by you satisfies the requirement in subparagraph 38-250(1)(b)(i), which provides:

(1) A supply is GST-free if:

(a) ...

(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; ...

This test to determine if a supply of accommodation is GST-free is applied at the time of supply, i.e. for the sale of a freehold interest in land, at settlement.⁴² In the proposed arrangement, at settlement, the purchaser pays to Entity A an amount equal to X% of the GST inclusive market value of Entity A's supply of the Apartment. In addition, any amount payable to Entity B under the Obligation Deed in future is also monetary consideration for the supply of the Apartment by Entity A.

Although the exact amount payable is unknown at the time of settlement, the Obligation Deed provides a methodology to calculate the amount of monetary consideration that will be payable. Although the amount of the future payment is unknown at the time of settlement, subparagraph 38-250(1)(b)(i) only requires an assessment as to whether the supply is for consideration that is 'less than 75% of the GST inclusive market value of the supply'. As such, it may not be necessary to know the exact amount of the further consideration in order to apply subsection 38-250(1).

In applying the test in subsection 38-250(1), you have not provided any evidence that the total consideration received (being all monetary consideration) will be less than 75% of the GST inclusive market value of your supply of the Apartment. In this regard, we note:

                                          i.    The valuation provided indicates that there is a X% probability that an Apartment will be on-sold within X years (with a greater than X% probability that it will be sold within X years). Accordingly, there is no information that suggests that the purchaser will not be required to make a payment under the Obligation Deed.

                                         ii.    The valuation provided indicates an annual growth rate of X% for units, using an annual growth rate of X% for the value of the Apartments in the valuation. On this basis, the amount of the payment under the Obligation Deed will be at least equal to X% of the GST inclusive market value of the supply of the Apartment at the time of the initial settlement between the purchaser and Entity A and expected to increase each year that the Apartment is held by the purchaser. However, even if this rate is not correct, there is no evidence that the amount payable under the Obligation Deed would decrease significantly such that X% of future market or sale value of the relevant Apartment would diminish to only X% of the GST inclusive market value of Entity A's supply of the Apartment at the time of that supply at settlement. For this to occur, the GST inclusive market value of an Apartment at the time of on-sale by the purchaser would need to have fallen to less than X% of the GST inclusive market value of the supply of the Apartment by Entity A.

Therefore, although the amount of the payment under the Obligation Deed is currently unknown, no information has been provided by you to support a conclusion that the consideration for the supply of the Apartment by Entity A will be less than 75% of the GST-inclusive market value of that supply for the purposes of the test in subparagraph 38-250(1)(b)(i). Accordingly, the supply of the Apartment by Entity A is not GST-free under subparagraph 38-250(1)(b)(i).

For completeness, it is noted that even if the obligation under the Obligation Deed is treated as non-monetary consideration, the use of a more appropriate discount rate (i.e., less than X%) would also likely result in section 38-250 not being satisfied.

Question 2

GSTR 2000/28 Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract provides the Commissioner's view on how section 29-5 operates in regard to the supply of real property.⁴³ Paragraph 25 of GSTR 2000/28 reads:

When you make a taxable supply of land under a completed standard land contract, you attribute the GST payable to the tax period in which settlement occurs. This applies if you account for GST on a cash basis or if you do not account for GST on a cash basis.

Furthermore, paragraph 195 of GSTR 2001/6 states that:

Consideration in the form of a conveyance of real property under a standard land contract is received and provided when settlement occurs. 'Settlement' refers to that stage in the completion of a standard land contract where the transfer in the purchaser's favour and certificate of title are exchanged for the purchase price.

Applied to this matter, the GST payable on the supply of the Apartment by Entity A would normally be attributed in full to the tax period in which settlement occurs.⁴⁴ However, as outlined above, part of the consideration will be payable at a future date upon the satisfaction of the contingency in the Obligation Deed. At the point of settlement, this amount is unascertainable and dependent on the happening of a future event, although it is expressed as an amount of money and a method of how it will be calculated is known.

The Commissioner has considered the attribution of GST in these types of arrangements and made special provisions under section 29-25⁴⁵ to vary the usual attribution rules. Therefore, PAR 2017/8 Goods and Services Tax: Particular Attribution Rules Where Total Consideration is Not Known Determination 2017 (PAR 2017/8)issued by the Commissioner under subsection 29-25(1) of the GST Act must be considered in this matter.

PAR 2017/8 will apply where you do not account on a cash basis and you make (here, relevantly) a supply and:⁴⁶

(a) you do not know the total consideration when any part of the consideration is received or when an invoice is issued relating to the supply, and

(b) the ascertainment of the total consideration depends on a future event or events that is not entirely within your control

and either:

(c) an invoice is issued relating to the supply, or

(d) any consideration is received for the supply.

You do not account on the cash basis and therefore you meet the criteria set out above.

In this case, PAR 2017/8 provides that where you make a supply before the total consideration is known, and no invoice is issued but consideration is received in a tax period, you attribute the GST on the supply you made in that tax period, but only to the extent of consideration received.⁴⁷ Where instead an invoice is issued stating an amount of consideration for the supply, the GST is attributable to that tax period but only to the extent of the amount stated in the invoice (if the amount received is less than or equal to the amount stated on the invoice), or consideration received (if more than the amount stated on the invoice).⁴⁸ GST on any increase in consideration is attributed in the tax period in which an invoice is issued or any additional consideration is received, whichever occurs earlier.

Under the proposed arrangement, it is assumed that Entity A will issue an invoice relating to the supply of the Apartment at settlement, stating the consideration as the purchase price under the Contract of Sale. Accordingly, the application of the special rules in PAR 2017/8 means that you will be required to attribute GST payable on the amount of consideration received under the Contract of Sale (as set out in the invoice you will issue at settlement) in the tax period settlement occurs.

The GST on any additional monetary consideration payable in future under the Obligation Deed is then attributable in the earlier of the tax period in which you either issue another (or amended) invoice or the further amount of consideration is received under the Obligation Deed by Entity B.⁴⁹

References

¹ Melbourne Apartment Project Pty Ltd (as Trustee for Melbourne Apartment Project) v Commissioner of Taxation [2019] FCA 2118.

² See, for example, Commissioner of Taxation v Luxottica Retail Australia Pty Ltd [2011] FCAFC 20 at [8]; AXA Asia Pacific Holdings Ltd v Commissioner of Taxation [2008] FCA 1834 at [90]; Re Brookdale Investments Pty Ltd and Commissioner of Taxation [2013] AATA 186 at [46]-[47].

3 GSTR 2003/13 Goods and services tax: general law partnerships at paragraphs 85I and 85J referring to Archibald Howie Pty Ltd v. Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143; [1948] HCA 28. In relation to the principles from Archibald Howie, see also Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3; Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51; Commissioner of State Revenue v 1043 Melton Highway Pty Ltd [2020] VSC 820at [58]-[70].

4 Paragraph 9-5(a) of the GST Act.

5 For example, see GSTR 2001/6Goods and services tax: non-monetary consideration (GSTR 2001/6) paragraphs 50 and 68.

6 GSTR 2001/6 at paragraph 66.

7 GSTR 2001/6 at paragraph 71.

8 GSTR 2001/6 at paragraph 72.

9 ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33 at [29] and [37]-[39].

1⁰ [2012] HCA 41 at [14].

1¹ [2013] FCAFC 105 at [33].

1² [2013] FCAFC 105 at [35]-[36].

1³ [2013] FCAFC 105 at [42].

1⁴ [2013] FCAFC 105 at [43].

1⁵ [2007] AATA 2095.

1⁶ [2007] AATA 2095 at [28].

1⁷ (1997) 18 NZTC 13,076.

1⁸ (1997) 18 NZTC 13,076 at 13,086.

1⁹ GSTR 2004/9Goods and services tax: GST consequences of the assumption of vendor liabilities by the purchaser of an enterprise at paragraph 96; GSTD 2000/10Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises?

20 Section 9-75 of the GST Act; GSTR 2001/6 at paragraph 32.

2¹ GSTR 2001/6 at paragraph 35.

2² GSTR 2001/6 at paragraph 85.

2³ GSTR 2001/6 at paragraph 43. See also Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation [2013] AATA 496 (at [17], [28]). Contrast obiter comments of Deutsch DP in McKinnon Holdings (NSW) Pty Ltd as trustee for The McKinnon Equipment Trust and Commissioner of Taxation [2016] AATA 917 at [45], in a case dealing with assumption of liabilities, where it seems that it was assumed to be non-monetary consideration even though the liabilities were expressed in amounts of money, which is inconsistent with the Commissioner's views in GSTR 2004/9 paragraphs 28, 99.

2⁴ Refer also to paragraph 29-25(2)(g) of the GST Act.

2⁵ See also GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25.

2⁶ Subsection 9-17(2) of the GST Act.

2⁷ GSTR 2012/2 Goods and services tax: financial assistance payments at paragraph 74.

2⁸ GSTR 2012/2 at paragraph 70; TR 2005/13 Income tax: tax deductible gifts - what is a gift. Leary v Commissioner of Taxation [1980] FCA 112; (1980) 32 ALR 221; Federal Commissioner of Taxation v McPhail [1968] HCA 13; (1968) 117 CLR 111.

2⁹ Leary v Commissioner of Taxation [1980] FCA 112; (1980) 32 ALR 221 at 237, 243-4.

³⁰ TR 2005/13 at paragraph 15. Leary v Commissioner of Taxation [1980] FCA 112; (1980) 32 ALR 221 at 244. See also Roman Catholic Church Trust Corp of the Archdiocese of Hobart v Commissioner of State Revenue [2012] TASSC 43 at [15].

³¹ Leary v Commissioner of Taxation [1980] FCA 112; (1980) 32 ALR 221 at 231, 237, 244.

³² Re Keenhilt Pty Ltd (as trustee for the CHC Services Trust) and Commissioner of Taxation [2007] AATA 2095 at [28]; The Trustee, Executors & Agency Company New Zealand Ltd v Commissioner of Inland Revenue (1997) 18 NZTC 13,076 at 13,086; GSTR 2004/9 at paragraph 96; GSTD 2000/10.

³³ Similar to the circumstances in Keenhilt.

³⁴ Clauses 2 and 1(d) of the Obligation Deed.

³⁵ Clause 2 of the Obligation Deed.

³⁶ Section 9-5 of the GST Act.

³⁷ Section 29-5 of the GST Act.

³⁸ There is a presumption that the same term is used more than once in a statute, it will have the same or a consistent meaning - see Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.

³⁹ In relation to an existing obligation to pay an amount of money upon the happening of a future event see, for example, Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47, (1969) 120 CLR 455 at 459; National Bank of Australasia Ltd v Mason [1975] HCA 56, (1975) 133 CLR 191 at 200.

⁴⁰ At Recital X in the Obligation Deed and the private ruling application.[1]

⁴¹ Clauses X and X of the Obligation Deed.

⁴² Paragraph 195 of GSTR 2001/6; paragraph 25 of GSTR 2000/28 Goods and services tax: attributing GST payable or an input tax credit arising from the sale of land under a standard land contract; and paragraphs 44, and 45C to 45E of GSTR 2006/7 Goods and services tax: How the margin scheme applies to supplies of real property made on or after 1 December 2005 that were acquired or held before 1 July 2000.

⁴³ Paragraph 4 of GSTR 2000/28 states that the Ruling applies equally to standard land contracts that are unconditional or conditional.

⁴⁴ Assuming the supply will be under a standard land contract.

⁴⁵ Specifically in this case, paragraph 29-25(2)(e) of the GST Act.

⁴⁶ PAR 2017/8 at paragraph 4.

⁴⁷ PAR 2017/8 at paragraph 5(2).

⁴⁸ PAR 2017/8 at paragraph 5(1).

⁴⁹ PAR 2017/8 at paragraph 5(3).