Private ruling: GST taxable supplies and non-monetary consideration
Date of advice: 15 June 2022
Published: September 2022

Ruling: Q1: Are the Services provided by you, and your surrender of the Land to the Government Entity under the Agreement, taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: If the answer to Question 1 is yes, are the grants of land identified as Parcels W, X, Y and Z made by the Government Entity to you under the Agreement consideration within the meaning of section 9-15 of the GST Act for the taxable supplies mentioned in Question 1? | A2: Yes. | Q3: If the answer to Question 3 is yes, can the market value of the taxable supplies made under the Agreement be treated as equal to the GST-inclusive market value of the consideration for those taxable supplies provided by the Government Entity for the purposes of section 9-75 of the GST Act? | A3: Yes, provided this produces a reasonable GST inclusive market value of the things exchanged.

Relevant facts and circumstances: You are registered for GST. On DDMMYYYY you entered into an agreement (the Agreement) with a government entity (Government Entity) with respect to land that you own (the Land). Your obligations under the Agreement are as follows: • you will surrender the land described in Folio X, being part of the Land, to the Government Entity • you will undertake the Services set out in the Agreement (Services) on the Land • all risks associated with delivering the Services lie with you. The Government Entity's obligation under the Agreement is as follows: • the Government Entity will grant to you parcels of land identified as parcels W, X, Y and Z (Grants). The Government Entity's obligation to make the Grants is subject to the following: The Grants do not amount to an appropriation under an Australian law. The Agreement provides that there is a default event if either party fails to comply with an essential term of the Agreement. The 'essential terms' are defined as follows: A breach of an essential term entitles the non-breaching party to compensation under the Agreement for any loss suffered or incurred by them as a consequence of the breach.

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 9-15 | A New Tax System (Goods and services Tax) Act 1999 section 9-17 | A New Tax System (Goods and services Tax) Act 1999 section 9-20 | A New Tax System (Goods and services Tax) Act 1999 section 9-75 | A New Tax System (Goods and services Tax) Act 1999 section 23-10 | A New Tax System (Goods and services Tax) Act 1999 section 149-15 | A New Tax System (Goods and services Tax) Act 1999 section 195-1

Reasons for decision: Summary: Your supply of the Services and your obligation to surrender Folio X to the Government Entity under the Agreement constitute one or more taxable supplies under the GST Act. | Detailed Reasoning - Detailed reasoning: Section 9-5 provides that you make a taxable supply if: a) you make the supply for consideration b) the supply is made in the course or furtherance of an enterprise that you carry on c) the supply is connected with the indirect tax zone (Australia) d) You are registered or required to be registered. However the supply is not a taxable supply to the extent that it is GST-free or input taxed. | Detailed Reasoning - You make the supply for consideration: To determine whether you are making any taxable supplies under the Agreement, we first need to examine whether any activities of yours or obligations you enter into can be characterised as a supply. Subsection 9-10(1) provides that a supply is any form of supply whatsoever. In particular, paragraph 9-10(2)(d) provides that a supply includes a grant, assignment or surrender of real property. Furthermore, paragraph 9-10(2)(g) provides that a supply includes an entry into, or a release from, an obligation: Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) examines the meaning of supply under section 9-10. Paragraph 22 of GSTR 2006/9 outlines the ten propositions which may be relevant to characterising and analysing supplies. The relevant propositions include: Proposition 5 provides that an entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient). This is consistent with the ordinary meaning of 'supply', being to furnish or provide. When analysing an arrangement to determine the GST consequences, it is necessary to examine the terms of the transaction documents between the parties and the facts and circumstances in which the arrangement is carried out to identify what is being supplied. In your case, you have surrendered Folio X to the Government Entity, pursuant to the Agreement. This is a supply by way of surrender of real property under paragraph 9-10(2)(d). You have also agreed to provide the Services under the Agreement. Entry into the obligation to deliver the Services is a promise you make that constitute essential terms under the Agreement. Failure by you to carry out the Services entitles the Government Entity to compensation. This is a supply by way of an entry into an obligation to do something under paragraph 9-10(2)(g). It now needs to be examined whether the supplies of surrendering Folio X and entering into the obligation to deliver the Services are made for consideration. Subsection 9-15(1) provides that consideration includes: a) any payment, or any act or forbearance, in connection with a supply of anything; and b) any payment, or act or forbearance, in response to or for the inducement of a supply of anything. Paragraph 12 of Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) explains that consideration is not limited to payments of money: 12. A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as: - providing goods; - granting a right or performing a service (an act); and - entering into an obligation, for example to refrain from selling a particular product (a forbearance). Paragraphs 50 and 51 of GSTR 2001/6 provide that there needs to be a connection between the supply and the payment for the supply to be made for consideration: 50. Section 9-15 further provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply. 51. It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply. Paragraphs 71 and 72 of GSTR 2001/6 provide that the test of determining a sufficient nexus between the supply and the consideration is an objective one based on the true character of the transaction: 71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. 72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive. The cornerstone of the concept of consideration for the purposes of the GST Act is that something of economic value is being provided for the supply being made. Paragraphs 81 and 82 of GSTR 2001/6 examine this further in a non-monetary context: 81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value. 82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply. In your case the other party to the Agreement, namely the Government Entity, is not providing you with a payment of money. The Government Entity is providing you with grants of land. These are parcels of land that have economic value and an independent identity, and so are capable of being characterised as consideration under paragraphs 81 and 82 of GSTR 2001/6 if they are being provided as payment for a supply. The obligations under the Agreement make it clear that the Grants made by the Government Entity are conditional upon, among other things, you complying with your obligations under the Agreement which includes providing the Services and surrendering Folio X. The Government Entity is providing support and aid to you, through making the Grants, for the development and upgrade of the Land. The Agreement shows a mutual exchange of things of economic value between the parties which are interlinked and dependent upon each other. The Government Entity is not obliged to make the Grants without you complying with your obligations under the Agreement. Therefore the Grants are being made in connection with or in response to your supplies of the surrender of Folio X and the Services under the Agreement. Subsection 9-17 deems certain payments and other things not to be consideration. Subsection 9-17(3) provides that a payment made by a government related entity to another government related entity where the payment is, among other things, covered by an appropriation under an Australian law. The Grants do not amount to an appropriation under an Australian law and therefore subsection 9-17(3) does not apply. We have also examined subsection 9-17(4) and note that the A New Tax System (Goods and Services Tax) Regulations 2019 do not prescribe anything for the purposes of that subsection, and therefore it also does not apply. Therefore the supplies of surrendering Folio X and entering into the obligation to deliver the Services under the Agreement are made for consideration and this element of section 9-5 is satisfied. | Detailed Reasoning - The supply is made in the course or furtherance of an enterprise that you carry on: The supplies of surrendering Folio X and entering into the obligation to deliver the Services are made in the course or furtherance of an enterprise that you carry on. Therefore, this element of section 9-5 is satisfied. | Detailed Reasoning - The supply is connected with the indirect tax zone: The supplies of surrendering Folio X and entering into the obligation to deliver the Services are connected with the indirect tax zone. Therefore, this element of section 9-5 is satisfied. | Detailed Reasoning - You are registered or required to be registered: You are registered for GST. Therefore, this element of section 9-5 is satisfied. Your supplies of surrendering Folio X and entering into the obligation to deliver the Services under the Agreement are neither GST-free nor input taxed. Therefore, they are taxable supplies under section 9-5. | Summary: The Grants made by the Government Entity to you are consideration within the meaning of section 9-15 for the supplies you make under the Agreement. | Detailed Reasoning - Detailed reasoning: Please refer to the detailed reasoning under the sub-heading 'you make the supply for consideration' in Question 1 above. | Summary: The market value of the taxable supplies referred to in Question 1 can be treated as being equal in value to the consideration provided by Government Entity for the purposes of section 9-75, provided it produces a reasonable GST inclusive market value of the things exchanged. | Detailed Reasoning - Detailed reasoning: Subsection 9-75(1) provides that the value of a taxable supply is the price x 10/11 where price is the sum of: a) so far as the consideration for the supply is consideration expressed as an amount of money - the amount (without any discount for the amount of GST (if any) payable on the supply); and b) so far as the consideration is not consideration expressed as an amount of money - the GST inclusive market value of that consideration. Paragraphs 138, 139, 141 and 144 of GSTR 2001/6 provide the Commissioner's view on establishing the market value of non-monetary consideration that is provided as part of an arm's length transaction: 138. Where the consideration for a supply is non-monetary, the GST inclusive market value of that consideration is used to work out the price and value of the supply. In most circumstances where parties are dealing at arm's length, we are of the view that the goods, services or other things exchanged are of equal GST inclusive market value. 139. As the GST inclusive market value of consideration will be shown as the price on any tax invoice that the supplier issues, the onus for determining the GST inclusive market value of the consideration rests with the supplier. ... 141. Market value is regarded as the price that would be negotiated at a specified time between a knowledgeable and willing but not anxious buyer and a knowledgeable and willing but not anxious seller acting at arm's length in an appropriate market. It is an objective test and not the subjective view of any one party. ... 144. You may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration. There will be situations where the methods used by parties differ according to their particular circumstances. Examples of reasonable methods include: • the market value of an identical good, service or thing; • the market value of a similar good, service or thing; • the market value of the supply; or • a professional appraisal. In your case, provided the Agreement is objectively an arm's length transaction, we consider that the supplies you make and the consideration provided by the Government Entity are of equal GST inclusive market value. You may use a reasonable valuation methodology to determine the value of the consideration provided by the Government Entity under the Agreement. You may then use this to determine the value of the taxable supplies you make under the Agreement in accordance with subsection 9-75(1). Using this method must produce a reasonable GST inclusive market value of the things exchanged.

you using your reasonable endeavours to progress the Services | you surrendering Folio X to the Government Entity | you otherwise complying with your obligations under the Agreement. | you delivering the Services and complying with your remaining obligations under the Agreement | to refrain from an act; or | to tolerate an act or situation. | Proposition 5: An entity will make a supply if it provides something to another entity | Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another.