Hornsby Shire Council and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/5657)
Judgment date: 26 November 2008
Date published: 3 September 2009
Decision outcome: Adverse to the ATO

Summary of decision:
Outlines the ATO response to the Tribunal's treatment, for GST purposes, of a compulsory acquisition of land by a government entity in circumstances where the land owner exercised a statutory right to compel the government entity to acquire its land.

Overview of facts:
CSR Ltd owned a quarry in Hornsby which was zoned Open Space A. Under the Hornsby Shire Local Environment Plan 1994 (LEP), owners of land which was zoned Open Space A could require that the taxpayer acquire the land. In accordance with its rights under the LEP, on 22 March 2001 CSR Ltd (CSR) notified the taxpayer that it required the taxpayer to acquire the quarry. | The taxpayer initially resisted the request; but after an action was taken by CSR in the Land and Environment Court, a notice pursuant to s 19 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) was published in the Gazette. The effect of the notice was that the land was vested in the taxpayer. Under s 37 of that Act, CSR became entitled to be paid compensation. | The taxpayer paid to CSR a total of $26,508,771.28 by way of compensation. The taxpayer sought to claim an input tax credit for the acquisition of the land. | Issues decided by the tribunal | The Tribunal held that CSR had made a supply on the basis that CSR entered into an obligation, within paragraph 9-10(2)(g), when it requested that the taxpayer acquire the land, or on the basis that CSR surrendered the land, within paragraph 9-10(2)(d), as a result of requesting the taxpayer to acquire the land. | Although it was unnecessary for them to consider the issue, nevertheless, the Tribunal agreed with the Tax Office's view that the making of a supply requires some form of positive action on the part of the supplier (paragraph 70). In this case, the Tribunal was satisfied that CSR had taken positive action by exercising its right to require the taxpayer to acquire the land. | The Tribunal also rejected the taxpayer's contention that CSR's entry into a Deed of Release surrendering its rights in consideration of the payment of the compensation constituted a supply (paragraph 54).

Issues decided:
The Tribunal held that CSR had made a supply on the basis that CSR entered into an obligation, within paragraph 9-10(2)(g), when it requested that the taxpayer acquire the land, or on the basis that CSR surrendered the land, within paragraph 9-10(2)(d), as a result of requesting the taxpayer to acquire the land. Although it was unnecessary for them to consider the issue, nevertheless, the Tribunal agreed with the Tax Office's view that the making of a supply requires some form of positive action on the part of the supplier (paragraph 70). In this case, the Tribunal was satisfied that CSR had taken positive action by exercising its right to require the taxpayer to acquire the land. The Tribunal also rejected the taxpayer's contention that CSR's entry into a Deed of Release surrendering its rights in consideration of the payment of the compensation constituted a supply (paragraph 54).

ATO view of decision:
The Commissioner agrees with the Tribunal's view that the making of a supply requires some positive action on the part of the supplier. The Tribunal's decision affirms the Tax Office's view in GSTR 2006/9 that, as a general principle, an entity must do something in order to make a supply. | The Commissioner accepts the Tribunal's finding that, on the specific facts of this case, CSR did make a supply of the land, by way of surrender under paragraph 9-10(2)(d), to the Council. In particular, CSR undertook positive action by initiating the process that directly led to the compulsory acquisition of the land by the Council. | It was the view of the Tribunal that CSR incurred legal obligations when, pursuant to the LEP, it gave notice to the Council requiring the Council to acquire the land. On the basis of this view, the Tribunal considered that paragraph 9-10(2)(g) was also applicable. It is the view of the Commissioner that this finding of the Tribunal is explicable on the basis that any such obligations entered into by CSR were a precursor to, or a part of, the surrender of the land. | The Commissioner considers that the Tribunal's decision is broadly consistent with his view in GSTR 2006/9 that an owner of real property does not make a supply when an acquiring authority initiates the process of compulsorily acquiring real property and the relevant interest is vested in the relevant government authority by extinguishing any previous interests in the land (as opposed to an acquisition of the real property by agreement). | The Commissioner accepts the Tribunal's decision and has decided not to lodge an appeal.

Administrative treatment:
None

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10 11-5 11-20 Income Tax Assessment Act 1936 26 26AAA 59 Land Acquisition (Just Terms Compensation) Act 1991 (NSW) 20 37 Environmental Planning and Assessment Act 1979 (NSW) 26 27 Taxation Administration Act 1953 105-60
Case references: Westley Nominees Pty Ltd & Anor v Coles Supermarkets Australia Pty Ltd & Anor (2006) 152 FCR 461 2006 ATC 4363 62 ATR 682 Fidler v Port Stephens Council ( 24 September 1996) BC9606976 [1996] NSWLEC 257 CSR Ltd v Hornsby Shire Council [2004] NSWSC 946 (2004) 2004 ATC 4966 (2004) 57 ATR 201 Databank Systems Limited v Commissioner of Inland Revenue [1987] 2 NZLR 312 Kirkness (Inspector of Taxes) v John Hudson & Co Ltd [1955] AC 696 Shell's Annandale Farm (Pty) Ltd v Commissioner for South African Revenue Service 62 SATC 97 IRG Technical Services Pty Ltd & Anor v Federal Commissioner of Taxation (2007) 165 FCR 57 [2007] FCA 1867 (2007) 69 ATR 433 (2007) 2007 ATC 5326 G Stewart & T Hammond t/a GT Shooting v Commissioners of Customs & Excise [2001] EWCA Civ 1988 [2002] Simon's Tax Cases 255 [2002] BTC 5238 Parker Hale Ltd v Customs & Excise Commissioners [2000] Simon's Tax Cases 388 Shaw v Director of Housing and State of Tasmania (No. 2) (2001) 10 Tas R 1 159 FLR 322 (2001) 2001 ATC 4054 (2001) 46 ATR 242
Subject references: GST meaning of supply compulsory acquisition of quarry by notice in the Gazette whether some form of action is required for the purposes of s 9-10(1) of the GST Act whether a legal obligation was incurred under para 9-10(2)(g) surrender under para 9-10(2)(d) relevance of deed of release in respect of the compensation.