Edited version of private advice

Authorisation Number: 1052300780176

Date of advice: 14 November 2024

Ruling

Subject: GST - development services and leasing

Question 1

Is the contribution the sole consideration you will receive for your supply of development services under the proposed agreement?

Answer 1

Yes. The contribution is the sole consideration that you will receive for your supply of development services under the proposed agreement.

Question 2

Is the rent to be paid by you, the sole consideration for the supply of the lease of the property to you under the proposed agreement?

Answer 2

Yes. The rent to be paid by you is the sole consideration you will make for the supply of the lease of the property to you under the proposed agreement.

Question 3

Will your supply of accommodation to tenants be GST-free under subsection 38-250(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the consideration for the supply is less than 75% of the GST inclusive market value of the supply?

Answer 3

Yes. The supply of accommodation by way of lease by you, who is an endorsed charity, for consideration that is less than 75% of the GST inclusive market value of the supply, will be GST-free under subsection 38-250(1) of the GST Act.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are registered as a charity with the Australian Charities and Not-For-Profits Commission (ACNC) and you are also an endorsed charity within the meaning of the GST Act.

You entered into a proposed agreement with Entity A:

•                     to provide development services, and

•                     to lease the property from Entity A for the purpose of providing social and affordable dwellings.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-30

A New Tax System (Goods and Services Tax) Act 1999 section 38-250

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

Does Division 165 apply to this private ruling?

Division 165 of the GST Act is a general 'anti-avoidance' rule that can apply in certain circumstances if you or another entity obtains a GST benefit from a scheme that you entered into or carried out for the main purpose of obtaining a GST benefit or allowing another to obtain one.

It may also apply in some cases where the GST benefit arises as a principal effect of a particular scheme. An entity can get a 'GST benefit' under the GST, Luxury Car Tax or Wine Equalisation Tax laws.

If Division 165 applies, the benefit can be cancelled. For example, we might increase the net amount for a particular tax period.

Unless your private ruling specifically discusses Division 165, we have not considered the application of the ant-avoidance provisions to your case.

If you want us to rule on whether Division 165 applies in your circumstances, contact your contact officer to find out what details we will need to make the private ruling.

Reasons for decision

All legislative references in this ruling are to the GST Act, unless otherwise specified.

Question 1

The term 'supply' is defined widely in subsection 9-10(1) to mean any form of supply whatsoever. Paragraphs 9-10(2)(a) and 9-10(2)(b) further provides that without limiting subsection 9-10(1), the term includes a supply of goods and a supply of services, respectively.

The Commissioner's views in relation to the meaning of 'supply' are set out in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). Paragraph 71 of GSTR 2006/9 provides that an entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient).

In this case, in undertaking the development services in accordance with the proposed agreement, you are making a supply (i.e. development services) to Entity A as the recipient because you as the supplier is providing something of value to the recipient.

The term 'consideration' is defined in section 9-15 to include:

(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.

Paragraph 50 of Goods and Services Tax Ruling GSTR 2001/6 Goods and Services Tax: non-monetary consideration (GSTR 2001/6) provides that there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply. Paragraph 51 of GSTR 2001/6 further explains that it follows that there are two elements to the definition of consideration where the first element is the payment by one entity to another and the second element is the nexus that must be established between the payment and the supply. Paragraph 56 of GSTR 2001/6 further provides that it will not be sufficient for there to be a supply and a payment, there must be a sufficient nexus between the supply and the payment.

Paragraph 180 of GSTR 2006/9 provides that in determining whether a payment is consideration under section 9-15 and whether there is a supply for consideration, the Commissioner takes the view that:

•                     the test, whether there is sufficient nexus between the supply and the payment made, is an objective test

•                     regard needs to be had to the true character of the transaction, and

•                     an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

In this regard, the proposed agreement provides that in consideration for your provision of the development servicers, Entity A agreed to pay you the contribution. There is a clear and direct nexus between your supply of the development services and the payment of the contribution. Therefore, the payment of the contribution is 'for' your supply of the development services and we consider that this is the sole consideration for your supply of the development services.

Question 2

As discussed in Question 1, the term 'supply' is defined widely in subsection 9-10(1) to mean any form of supply whatsoever. Paragraphs 9-10(2)(b) and 9-10(2)(d) further provides that without limiting subsection 9-10(1), the term includes a supply of services and a supply of grant, assignment or surrender of real property, respectively.

In this case, undertaking the lease in accordance with the proposed agreement, Entity A is making a supply of leasing the property to you. There is a supply of leasing from Entity A to you.

As discussed in Question 1, the term 'consideration' is defined in section 9-15 to include:

(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.

Under the proposed agreement, you must pay the rent to the Entity A.

Based on the legislative discussion in Question 1, there is a clear and direct nexus between the rent and Entity A's supply of the lease of the property. In this regard, the rent is consideration for Entity A's supply of the lease to you. The services and requirements that you are is required to perform and satisfy are not consideration for the supply of the lease.

As such, we consider the rent is the sole consideration for Entity A's supply of the lease of the property to you.

Question 3

Section 40-35 provides that a supply of residential premises (other than a supply of commercial residential premises) by way of lease is input taxed. However, a supply of residential accommodation may be GST-free if the requirements of section 38-250 are satisfied. Paragraph 9-30(1)(a) provides that a supply is GST-free if it is GST-free under Division 38.

Subsection 9-30(3) further provides that if a supply is both GST-free and input taxed, the supply is GST-free unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed.

Section 38-250 provides that a supply of accommodation is GST-free if the supplier is an endorsed charity, a gift-deductible entity, or a government school and the consideration for the supply:

•                     is less than 75% of the GST inclusive market value of the supply or

•                     is less than 75% of the cost to the supplier of providing the accommodation.

As you are an endorsed charity, providing the rent that is less than 75% of the GST inclusive market value of the supply, the supply would be GST-free under subsection 38-250(1).

Additionally, for completeness, if the rent that is less than 75% of your cost of providing the accommodation, the supply would also be GST-free under subsection 38-250(2).

If your supply of accommodation to a tenant satisfies either subsections 38-250(1) or (2), the supply would be both GST-free and input taxed and, in this regard, the supply would be GST-free under subsection 9-30(3).