Edited version of your written advice

Authorisation Number: 4120065481904

Date of advice: 03 May 2019

Ruling

Subject: GST and sale of land

Question 1

Are you considered to be “the State” for the purposes of Division 75 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 1

Yes

Question 2

Does the Council have a legal liability for GST on the sale of property?

Answer 2

No. Section 114 of the Commonwealth of Australia Constitution Act 1900 (the Constitution) prohibits the imposition of any tax by the Commonwealth on property of any kind of the State. Accordingly, section 5 of the A New Tax System (Goods and Services Tax Imposition - General) Act 1999 (the Imposition Act) provides that the Imposition Act does not impose a tax on property of any kind belonging to a State.

However, an Act of your State Act provides for payment of notional GST amounts by State entities. Therefore, all State entities (including local government bodies) are permitted to pay notional GST amounts as if section 114 of the Constitution and section 5 of the Imposition Act did not apply. Paragraph 15(aa) of the Local Government (Financial Assistance) Act 1995 requires the State to reduce funding to a Council that has not paid a notional amount of GST to the Commonwealth.

Question 3

Is the sale by you of land subject to GST?

Answer 3

Yes

This ruling applies for the following period: 01 July 2018 to 30 June 2019.

Relevant facts and circumstances

● You entered into a Contract of Sale of Real Estate (the contract) to sell land held by you.

● There are no dwellings such as residential premises attached to the land.

● The contract stated that the purchase price was $xxx plus GST. A deposit was payable.

● The section of the contract where the parties can nominate that the margin scheme is to apply has been left blank.

● A clause in the contract states “The purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price if the particulars of sale specify that the price is ‘plus GST’”.

● Settlement occurred on in 2019.

● A tax invoice has not been issued to the recipient and you are waiting on the outcome of this private ruling before issuing any tax invoice.

● You acquired the land before 1 July 2000.

● You are not aware of any clearing of timber, structures on the land or any fencing as at 1 July 2000. You understand that the land was cleared when the original subdivision was undertaken over 40 years ago. Existing vegetation is predominantly regrowth since that time.

● Some vegetation has been cleared approximately 6-8 years ago to provide fire protection to the building constructed on an adjoining lot.

● You provided two aerial pictures of the land.

Reasons for decision

Question 1

From an administrative perspective, the ATO will accept that local government bodies established under an Act of the State are the ‘State’ for the purposes of applying the GST provisions referred to in paragraph 1 of Goods and Services Tax Ruling GSTR 2006/5. However, this administrative approach is subject to review by the ATO if there are amendments to this statute that gives rise to changes in the constitution, responsibilities and powers of local government bodies in your State.

Question 2

Section 114 of the Constitution prohibits the imposition of the tax in respect of the property of a State.

When GST was introduced it was intended that all government entities, including states, territories and local governments would have the same obligations and entitlements as non-government entities (businesses). Paragraph A28 of the Intergovernmental Agreement on Federal Financial Relations states:

The Parties intend that the Commonwealth, States, Territories and local governments and their statutory corporations and authorities will operate as if they were subject to the GST legislation. They will be entitled to register, pay GST or make voluntary or notional payments where necessary and will be entitled to claim input tax credits in the same way as non-government organisations. All such payments will be included in GST revenue.

As noted above, the ATO will accept that local government bodies established under an Act of a State are the ‘State’ for GST purposes. Section 114 of the Constitution provides that the Commonwealth cannot impose a tax on the property of the State. In acknowledgement of this prohibition, section 5 of the A New Tax System (Goods and Services Tax Imposition - General) Act 1999 provides that the GST Act does not impose a tax on property of any kind belonging to a State. The exceptions to this are ACT and NT. The ACT does not have local government bodies and section 114 of the Constitution does not apply to local government bodies in the NT.

Noting section 114 of the Constitution and to give effect to the intention that state and local government bodies should make voluntary or notional payments of GST, when the GST was introduced each of the States enacted laws allowing for such payments. An Act of your State provides for payment of notional GST amounts by State entities. Therefore, all State entities (including local government bodies) are permitted to pay notional GST amounts as if section 114 of the Constitution and section 5 of the Imposition Act did not apply.

To ensure that the payments are in fact made, the Commonwealth inserted paragraph 15(aa) in the Local Government (Financial Assistance) Act 1995 (Comm.) that:

Payment of an amount to a State (other than the Australian Capital Territory) under this Act in respect of a year is subject to:

…

(aa) a condition that, if the payment is one from which, according to an agreement between the Commonwealth and the State, the State is to withhold an amount that represents voluntary GST payments that should have, but have not, been paid by local governing bodies--the State will withhold the amount and pay it to the Commonwealth; …

Question 3

A supply of land will be a taxable supply where all of the requirements of section 9-5 of the GST Act are met. In this case, the supply of the land by you is a taxable supply as those requirements have been met, namely:

● the supply of the land is for consideration

● the supply is made in the course of an enterprise you carry on

● the supply is connected with the indirect tax zone, and

● you are registered for GST.

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

Section 40-65 of the GST Act does not apply to make the supply input taxed as it is not a supply of residential premises.

Under Division 75 of the GST Act, the margin scheme may be used to calculate the GST payable on a supply of real property where the supplier and the recipient of the supply agree in writing that the margin scheme is to apply.

The relevant part of the contract that is used to nominate that the margin scheme is to apply was left blank.

As there was no written agreement to apply the margin scheme to determine the GST payable on the supply of the land, you are liable for GST as determined by the normal rules.

The amount of GST payable on the taxable supply is 10% of the value of the supply. The value of a supply is the GST-exclusive amount. The GST-inclusive amount for a supply is the price.

Under a clause of the contract, the purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply in addition to the price if the particulars of the sale specify that the price is ‘plus GST’.

The contract provides that the purchase price is $xxx ‘plus GST’. Therefore, the value of the land is $xxx and the amount of GST payable on the supply of the land is 10% x $xxx.

Under subsection 29-70(2) of the GST Act, the supplier of a taxable supply must, within 28 days of a request from a recipient, issue a tax invoice to the recipient.