Edited version of private advice

Authorisation Number: 1052291988084

Date of advice: 19 August 2024

Ruling

Subject: GST - compulsory acquisitions

Question 1

Will the supply of the portion of the 'Site' be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following periods:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You, <entity name>, as the Trustee for <Trust name> (ABN: <number>) conduct a <type of enterprise>.

You registered for GST from <date> and currently report your GST obligations on <cycle> and < accounting basis>.

On <date> you purchased a property located at <property address> formally known as Lot <number> on Plan of Subdivision <number> (the Property). When purchased, the Property comprised of <number> hectares of <type of land> and contained a storage shed. The Property was originally used for <type of enterprise> and subsequently for <type of enterprise>.

Circa <year> when you submitted plans to sub-divide the Property you became aware that the <Minister> had an interest in a portion of the Property for a proposed school development.

On <date> the <Minister> notified you of their intention to acquire <number> hectares of the Property.

On <date> the <Minister> published the Notice of Compulsory Acquisition of Land in the <State> Government Gazette acquiring your interest in the land described as Lot <number> on proposed Plan of Subdivision <number>, being part of the land described in Lot <number> on Plan of subdivision <number> contained in Certificate of Title volume <number> folio <number> generally known as <property address> (the Site).

The acquisition of the Site was made pursuant to the provisions of the Land Acquisition and Compensation Act 1986 (LAC Act) and pursuant to section 5.2.3(1) of the Education and Training Reform Act 2006 (the ETR Act) for the purpose of the establishment of the <Primary School>.

The <Department> led by the <Minister> is a government agency.

On <date> the <Minister> (referred to as the 'Authority' for the purposes of the LAC Act) made you an initial offer of compensation of $<amount> pursuant to section 31 of the LAC Act.

As at the date you submitted the private ruling application on <date>, you and the <Minister> had not executed any contracts with regards to the compensation offer.

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.

You make a taxable supply where you satisfy the requirements of section 9-5 which provides:

You make a taxable supply if:

a)    the entity makes the supply for consideration

b)    the supply is made in the course or furtherance of an enterprise that the entity carries on

c)    the supply is connected with Australia, and

d)    the entity is 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 Act. For there to be a taxable supply, there must be a supply. The term 'supply' is defined in section 9-10 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.

For GST purposes we need to consider whether the acquisition of the interest in the Property made by the <Minister> was the result of a supply of the 'Site' made by you.

The meaning of the term 'supply' is discussed further in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9).

Paragraphs 80 to 84 of GSTR 2006/9 discusses the effect of a legislative acquisition of an interest in real property by a government authority:

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.

82A. However, in other cases the owner may do something or undertake some action such that it does make a supply of the land that vests in the authority. For example, see the decision in Re Hornsby Shire Council v. Commissioner of Taxation in which the Administrative Appeals Tribunal found that, in the circumstances the owner, CSR Limited, made a supply of its land by way of entry into an obligation and the surrender of its land when it issued a notice, pursuant to statute, compelling the Hornsby Shire Council to acquire its land.

83. Some statutes provide that land remaining, where only part of the land (the 'target land') is to be compulsorily acquired, will also be compulsorily acquired if the owner and the acquiring authority agree that the remaining land will be of no practical use or value to the owner. In cases where, prior to the vesting of the target land, the owner and authority agree that the remaining land will also be acquired, and the remaining land is acquired contemporaneously with the target land, it is the Commissioner's view that the owner does not make a supply of the remaining land to the acquiring authority. Although the owner may have requested that the remaining land be acquired, the agreement reached between the parties, and the resulting acquisition of the remaining land is integral, ancillary or incidental to the compulsory acquisition of the target land.

83A. In contrast to the circumstances described in paragraph 83 of this Ruling, the land owner may, at a time subsequent to the authority's acquisition of the target land, request that the authority acquire the remaining land on the basis that it is of no practical use or value to the owner. Consistent with the decision in Re Hornsby Shire Council v. Commissioner of Taxation in these circumstances it is the Commissioner's view that the owner has taken some action by requesting that the remaining land be acquired and makes a supply of the remaining land by way of surrender to the authority. In such cases, the acquisition of the remaining land is not integral, ancillary or incidental to the authority's compulsory acquisition of the target land.

84. Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner.

Application to your circumstances

In your case the Site's compulsory acquisition process was initiated by the Authority having served you a notice of its intention to acquire the Site pursuant to the LAC Act.

A Notice of Compulsory Acquisition of Land (Notice of Acquisition) was published in the <State> Government Gazette on <date>.

Pursuant to section 24 of the LAC Act, upon the publication of the Notice of Acquisition:

(a)  the interest in land described in the notice vests in the Authority [<Minister>] without transfer or conveyance freed and discharged from all trusts, restrictions, dedications, reservations, obligations, mortgages, encumbrances, contracts, licences, charges and rates of any kind; and

(b)  any interest that a person has in that land is divested or diminished to the extent necessary to give effect to this subsection.

Consequently, as of <date> your legal and equitable interests in the Site were extinguished and you became entitled to a claim for compensation pursuant to section 30 of the LAC Act.

You did not take any action to cause the legal and equitable interests in the Site to be transferred or surrendered to the Authority. Whilst you may take steps to achieve the highest possible amount of compensation for your losses, the compulsory acquisition and extinguishment of all existing interests in Site occurred as a result of the operation of statute and regardless of your actions.

The circumstances in this case are on par with those described in paragraph 82 of GSTR 2006/9 as stated above. Therefore, in this case we consider that you have not made a supply of the Site to the Authority as a result of the compulsory acquisition process.

Paragraph 84 of GSTR 2006/9 further clarifies that the mere acceptance of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land or interest which passes and the means by which it passes. Even if the owner agrees to the amount of compensation and the terms of the acquisition, the land or interest is acquired by the operation of the statute and not by an action taken by the landowner.

Conclusion

As discussed above, for an entity to make a taxable supply, it must make a supply. Based on the facts, we consider you will not be making a supply as defined in section 9-10 as a result of the compulsory acquisition of the Site by the <Minister>.

As you are not making a supply, you will not be making a taxable supply in relation to your interests in the Site being compulsorily acquired by the <Minister>.