Edited version of private advice

Authorisation Number: 1052180663743

Date of advice: 18 October 2023

Ruling

Subject: GST - compulsory acquisition of property

Question

Did you make a taxable supply as defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when your properties were compulsory acquired by a Government Authority?

Answer

No.

This ruling applies for the following period(s)

1 July 2020 - 30 June 2021

The scheme commences on

1 March 2021

Relevant facts and circumstances

You were registered for GST from dd/mm/yyyy to dd/mm/yyyy.

You carried on an enterprise of leasing commercial property.

You acquired and leased commercial property (the Properties)

The Properties were compulsory acquired on dd/mm/yyyy by a State Government Authority (Entity A).

Notice of the compulsory acquisition was published in the Government Gazette dated dd/mm/yyyy

The compulsory acquisition of the Properties was initiated by Entity A.

On dd/mm/yyyy, the Valuer General determined the value of the property to be a specified amount plus a disturbance amount, amounting to a total of $x.xm.

Handover of the Properties occurred on dd/mm/yyyy.

Compensation was received on dd/mm/yyyy.

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 9-40

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

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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; and

(d)  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.

The existence of a 'supply' itself is an essential element in determining whether the transaction is a taxable supply under the GST legislation. For there to be a taxable supply, there must be a supply.

The term 'supply' is defined in subsection 9-10(1) as 'any form of supply whatsoever'. Under subsection 9-10(2) examples of supplies include:

• a grant, assignment or surrender of real property
• a creation, grant, transfer, assignment or surrender of any right.

The meaning of the term 'supply' is discussed in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) and contains ten propositions for the purpose of analysing a transaction to identify the supply or supplies made under a particular arrangement.

Paragraphs 71 to 91 of GSTR 2006/9 concern proposition 5 which refers to the principle that to 'make a supply' an entity must 'take some action' of doing something.

Within this concept, paragraphs 80 to 82 of GSTR 2006/9 discusses the acquisition of an interest in real property by Government authorities pursuant to legislation:

80. Various government authorities are empowered by legislation to acquire an interest in real property. Two common mechanisms employed by legislation are:

•         the vesting of the interest in the relevant government authority and extinguishing any previous interests in the real property; and

•         the particular statute may allow the government authority to acquire the real property by agreement.

Vesting in the government authority

81. An example of vesting is provided by section 20 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), where the required acquisition notices are gazetted, the relevant land is:

•         'vested in the authority of the State acquiring the land'; and

•         'freed and discharged from all estates, interests, trust, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land'.

The entity whose interest in the land is extinguished is compensated for the loss of that interest. That entity may agree to the compensation determined by the Valuer-General and execute a form of release. If the entity disputes the compensation amount, there is provision for payment of 90% of the initial valuation until the matter is resolved.

82. The effect of the gazettal notice is that the legal ownership of the land, described in the notice, is vested in the authority acquiring the land, and that the land becomes freed from any other interests. The entity's interest in the land, whether legal or equitable, is extinguished. When land vests in an authority in consequence of a gazettal notice, it is necessary to examine the relevant facts and circumstances to determine whether or not the owner makes a supply of the land to the authority. In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority.

Application to your circumstances

A notice of the acquisition of the Properties was published in the Government Gazette dated dd/mm/yyyy.

Compensation was determined by the Valuer-General pursuant to the relevant State legislation.

You received the compensation amount on dd/mm/yyyy.

The process of the compulsory acquisition of your Properties was initiated by Entity A.

Given the above, we consider that you did not make a supply when the Properties vested with Entity A pursuant to the Gazettal notice.

Consequently, you did not make a taxable supply of the Properties for GST purposes and you are not liable for GST pursuant to section 9-40.