Private ruling: Goods and Services Tax and Machinery of Government changes
Published: December 2013

Ruling: Q1: Does subsection 38-445(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to deny GST-free status for transfers of land resulting from machinery of government changes? | A1: No

Relevant facts and circumstances: You were established through amendments to an Act. You are registered for GST. You are a State for the purposes of section 38-445 of the GST Act. A number of other authorities have preceded you. You hold freehold title to a number of parcels of land.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 38-445 | A New Tax System (Goods and Services Tax) Act 1999 (GST ACT) section 195-1 | A New Tax System (Australian Business Number) Act 1999 (ABN Act) section 41

Reasons for decision: Summary: Section 38-445(1) of the GST Act provides that a supply by the Commonwealth, a State or a Territory of land on which there are no improvements is GST-free if the supply is of a freehold interest in the land. However, section 38-445(2) denies GST-free status if, since 1 July 2000, the land has already been the subject of a supply that is GST-free under this section. The Commissioner's view in respect of land on which there are no improvements is contained in Goods and Services Tax Ruling GSTR 2006/6 GST: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6). This ruling does not consider whether the land that is the subject of this ruling is 'land on which there are no improvements' You are a State for the purposes of section 38-445 of the GST Act. You currently hold freehold title to a number of parcels of land. Where this is land on which there are no improvements, a supply you make may be GST-free under section 38-445 unless the land has already been the subject of a GST-free supply under the section. The meaning of supply is contained in section 9-10 of the GST Act and is any form of supply whatsoever. Subsection 9-10(2) of the GST Act expands on the meaning of supply. Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax : supplies (GSTR 2006/9), examines the meaning of 'supply' in the GST Act. Part 2 of the ruling looks at how to identify and characterise supplies in the context of the transactions in which they are made. Of relevance is Proposition No 5: To 'make a supply' an entity must do something. Proposition No 5 includes the following at paragraphs 71-74: 71. In overseas jurisdictions the term 'supply' has been held to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. The Commissioner picks up this meaning in considering the meaning of supply in the GST Act at paragraph 41 of GSTR 2004/9, a ruling which is about the assumption of liabilities: In adopting the ordinary and natural meaning of the term, 'to furnish or provide', it follows that an entity must take some action to 'make a supply'… 72. The use of the word 'make' in the context of section 9-5 was considered by Underwood J in Shaw v. Director of Housing and State of Tasmania (No. 2) ('Shaw') in relation to the payment of a judgment debt. His Honour was of the view that GST only applies where the 'supplier' makes a voluntary supply and not where a supply occurs without any action by the entity that would be the 'supplier' had there been a supply. He considered the actions of the judgment creditor with respect to the extinguishment of the debt when the judgment debtor made the payment of the judgment sum to meet the judgment debtor's obligations. 73. The Commissioner agrees with Underwood J's decision that there was no supply by the judgment creditor, as the judgment creditor did not do any act or thing to extinguish the obligation when the judgment debtor paid the judgment debt. 74. However … an entity can still make a supply even if the supply is made under the compulsion of statute if the entity takes some action to cause a supply to occur… The following is an extract from these references: GST and machinery of government changes (NAT 73389) GST and machinery of government - frequently asked questions (NAT 73995) A change undertaken by the Commonwealth, a State or a Territory in relation to government organisations (which include government entities and government related entities) that involve certain types of restructuring is known as a machinery of government (MOG) change. Examples of MOG changes include: · An abolition of a government organisation by transferring its functions to other government departments; · A merger of two or more government departments; · Movement of functions in to or out of government departments; · A government department name change. An example of a common MOG change is when functions from one government organisation (the losing agency) are transferred to another government organisation (the gaining agency). The transfer of the functions under the MOG change may be effected by a number of methods including through an Australian law establishing a government related entity that is a body corporate. At the time the MOG change takes effect the Australian law would operate (in relation to the transferred functions) to, among other things: · transfer any property, assets, rights, debts, liabilities and obligations held by the losing agency to the gaining agency; · treat a reference to the losing agency in any document or arrangement as a reference to the gaining agency. For GST purposes, MOG changes apply to both government entities and government related entities. Under section 195-1 of the GST Act, government entity has the meaning given by section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) and includes: a) a Department of State of the Commonwealth, or b) a Department of the Parliament (established under the Parliamentary Service Act 1999), or … e) an organisation that: (i) is not an entity; and (ii) is either established by the Commonwealth, a State or Territory (whether under a law or not) to carry on an enterprise, or established for a public purpose by an Australian law; and (iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation; whether or not the organisation is part of a Department or branch described in (a), (b), (c) or (d) or of another organisation of the kind described in this paragraph. You are a body corporate. For GST purposes a body corporate is an entity. An entity is excluded from the definition of government entity by paragraph (e)(i) of section 41 of the ABN Act. Therefore you do not come within the definition of government entity. However, the term government related entity as defined under section 195-1 of the GST Act builds on the definition of government entity and includes an entity that would be a government entity but for subparagraph (e)(i) of the definition of government entity. From the facts provided, it is accepted that you and your predecessor authorities are government related entities. We consider that there are MOG changes. Where the transfer of functions is due to an Australian law that operates to transfer any property, assets, rights, debts, liabilities or obligations held by the losing agency to the gaining agency there are no GST consequences if those assets or liabilities are transferred as a result of MOG changes. This is because the losing agency has not taken any action to cause the assets and liabilities to be transferred to the gaining agency (and neither has the gaining agency done anything) We consider that the transfers were as a result of machinery of government changes. The Commissioner accepts that the transfers of land did not give rise to supplies for the purposes of section 9-10 of the GST Act. Therefore we agree that land transferred in this manner has not previously been subject to a supply which is GST free under section 38-445 of the GST Act. On this basis, subsection 38-445(2) also does not apply.