Private ruling: GST and the development of vacant land.
Published: May 2012

Ruling: Q1: Are your supplies to the Owner of the property, as set out in the development agreement (DA) taxable supplies (as defined in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act))? Are you entitled to apply the special attribution rules in Schedule 5 of GSTR 2000/29 to attribute the GST on the supplies you make to the Owner? Are the acquisitions you make in performing or undertaking the Project Activities outlined in the DA, creditable acquisitions? | A1: Yes, your supplies of services to the Owner, as set out in the DA are taxable supplies. Yes, you may apply the special attribution rule in the determination in Schedule 5 of GSTR 2000/29 to attribute the GST payable on the supplies you make to the Owner. Yes the acquisitions you make in performing or undertaking the Project Activities outlined in the DRA will be creditable acquisitions provided that the requirements of section 11-5 of the GST Act are met in each case.

Relevant facts and circumstances: You, are registered for GST and account on a non-cash basis. You are a non reporting member of a GST group whose main activity is property development. On a specified date you entered into an agreement with Entity A, the Owner of a Property located in Australia. The agreement was to develop the Property, into a minimum number of lots and sell them off in stages. The development will take place over a number of years. It will include prescribed open spaces, roads pathways and services supplied to each lot along with any infrastructure required by the council. You supplied a copy of the DA which sets out the obligations of the parties in respect of the development of the land. Broadly the DA authorises you to undertake "Project Activities" on specified parts of the Property. The Project Activities include: · procuring the amendment of the statutory development plan affecting the Land so that it is zoned primarily for residential use; · procuring the grant of provisional development plan consent for the Land to be divided into at least X residential lots; · complying with all conditions stipulated in any development consent of land division consent, including entering into any design, construction and/or supply contracts for infrastructure to be installed on the Land and undertaking any civil works; · engaging licensed land agents to market the developed lots for sale at fair market values. · facilitating the entry into and completion by the Owner of all sale agreements to ensure all residential lots contemplated by the development are sold. The following milestones were to be completed by you before a specified date. · procuring the amendment of the development plan from the relevant state authority such that a majority in area of the Land is zoned for residential use by way of gazettal · at your own cost, make application for and obtaining (at first instance or on appeal) provisional development plan consent and land division consent under the relevant State Act · procuring the deposit by the Registrar-General in the Land Titles Registration Office of the Primary Plan of Division · the parties at their own respective cost, obtaining the GST private binding ruling contemplated in clause X. The milestones were to all be satisfied or waived by a past date however this deadline has been extended and currently only the GST private binding ruling is outstanding. A Security Amount of $X is to be paid on execution of the DA by you and a further amount of $X is liable to be forfeited if the Owner terminates the DA in specified circumstances. Subject to circumstances where a transfer of a part of the land is required, including on the settlement of any of the Sale Agreements, the Owner is to remain the legal and beneficial owner of the Land until the making of all payments payable to them under the terms of the DA. The Owner will grant you an exclusive license to access the property to fulfil your obligations under the DA. You must use your best endeavors to carry out the Project Plan. The Owner is obliged to grant a mortgage over the Land to secure any borrowings by you to undertake the Project Activities but the Owner is not otherwise liable personally for any moneys secured (in other words there is no 'personal covenant' binding the owner as an individual). As part of its obligations under the DRA, the Owner must enter into and complete contracts (Sale Agreements) for the sale of all of the subdivided lots created by you as negotiated by you. Any Project Activities are to be undertaken by you are at your own cost. The Owner proposes to apply the GST margin scheme with respect to the subsequent sales of the lots if applicable. The Sale Agreements are expected to be in the form of a Standard Land Contract (as defined in GSTR 2000/28 paragraph 10) and the purchasers will be persons identified by you in the course of Project Activities that you conduct. The proceeds of sale of the subdivided lots are required to be paid into a Project Account. You are beneficially entitled to the credit balance (from time to time) of that account, subject to a charge in favour of the Owner for moneys payable by you to the taxpayer under the DRA. The Owner will be entitled to retain the greater of $X or X% of the gross receipts of the sale proceeds. This amount will be paid in monthly installments and are scheduled annually from the commencement date being the date when stipulated milestones have been achieved. You are required to make certain payments to the Owner and these are set out in the DA. You are absolutely entitled to any surplus Gross Receipts not required to be paid to the Owner. Set out below are some relevant definitions and clauses from the DRA Gross Receipts means gross proceeds from the sale of any of the Land or any Lot during the Term before any vendor's costs of marketing or sale or conveyancing are taken into account and also before any amount payable to a Financier or payable to the developer to discharge a security interest over a Lot sold, and includes any deposit forfeited and any damages recovered upon the termination of a Sale Agreement by reason of the default of a purchaser. Land means at any time Lot X and Lot Y or so much thereof as the Owner remains the owner. Lot/s means allotments created following one or more subdivisions of the Land on or after the Commencement Date, and includes any community lots upon any of the Land created on deposit of a community plan under relevant laws and any strata units upon any of the Land created on deposit of a strata plan under your State strata laws . Lot X means the land on the date of this Agreement comprised in allotment X in Deposited Plan No. Y in Certificate of Title Register Book Volume Z Folio S but excluding the House Black comprising approximately X hectares. Lot Y means the land on the date of this Agreement comprised in Certificate of Title Register Book Volume X Folio Y comprising about Z hectares and identified as the area bounded in red on the draft Primary Plan of Division but excluding the House Block. Sale Agreement means a contract between the Owner and purchaser for the sale of a Lot that conforms to these requirements or as the Owner and You may in any case agree in writing: (a) the Lot will be supplied by the Owner under the Margin Scheme; (b) a price (before customary adjustments) at least that contemplated by the Owner and You; (c) any cash deposit is payable only to the Project Account or to the trust account of the land agent or Owner's lawyer acting in the sale (and if the latter, to be paid to the Project Account, minus the agent's commission, at closure); (d) the (balance of the) price is payable in immediately available funds at closure and only to credit of the Project Account subject to clause X; (e) no vendor finance; (f) no Encumbrance granted by the Owner in favour of the purchaser and (g) otherwise, customary terms and conditions. Security Amount means total $X (before GST) as may later be increased by operation of clause Y and clause Z

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5. | A New Tax System (Goods and Services Tax) Act 1999 Division 11. | A New Tax System (Goods and Services Tax) Act 1999 23-5. | A New Tax System (Goods and Services Tax) Act 1999 9-20. | A New Tax System (Goods and Services Tax) Act 1999 188-10. | A New Tax System (Goods and Services Tax) Act 1999 9-10

Reasons for decision: Detailed Reasoning - 1 Are your supplies of services to the Owner, as set out in the Development Rights agreement, taxable supplies? (as defined in the GST Act): Section 9-5 of the GST Act 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 Australia; and (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. For your supplies of services to be taxable supplies, all of the requirements in section 9-5 of the GST Act must be satisfied and must not be excluded because the supply is either GST-free or input taxed. In your case · you will receive monthly payments as set out in the DA; · your supplies are made in the course of your development enterprise you undertake in Australia; · you are registered for GST; and · in addition, the supplies of your services are not GST free or input taxed in your factual situation. Therefore your supply of services that you make under the DRA will be taxable supplies. | Detailed Reasoning - 2 How does Division 29 of the GST Act apply to you in relation to supplies you make to the Owner?: Division 29 sets out amongst other things which tax periods your taxable supplies, are attributable. Section 29-5 provides that the GST payable by you on a taxable supply is attributable to the tax period in which any of the consideration is received for the supply; or if, before any of the consideration is received, an invoice is issued relating to the supply-the tax period in which the invoice is issued. In your case you will be making ongoing supplies of services to the Owner, associated with the development, subdivision, marketing and sale of the Property. When a completed lot is sold by the Owner the Gross proceeds will be deposited into a project account. You will receive payment for your services as set out in the DA. However in your case you are unable to ascertain the total consideration you will receive for these services. Section 29-25 of the GST Act sets out that the Commissioner may determine different attribution rules. You have asked whether section 29-25 of the GST Act is applicable in your factual situation. Goods and Services Tax Ruling GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 (GSTR 2000/29) deals with various attribution rules in regards to GST payable, input tax credits and adjustments under the GST Act. Section 29-25 provides that the Commissioner may in writing determine the tax periods to which GST on taxable supplies of a specified kind are attributable. Therefore, in circumstances involving (amongst other things) a supply or acquisition occurring before the supplier or recipient knows the total consideration, the Commissioner has determined that in certain circumstances the standard attribution rules do not apply and the particular attribution rules will apply as set out in the various determinations. Schedule 5 of GSTR 2000/29 applies where: (a) you make a taxable supply; (b) you do not know the total consideration for the supply when any consideration is received for the supply or an invoice is issued relating to the supply; and (c) the ascertainment of the total consideration depends on a future event or events that are not entirely within your control; and either: (d) an invoice is issued relating to the supply; or (e) any consideration is received for the supply. In your case you will be making taxable supplies of services to the Owner of the property over the stages of the project. You will be paid for these services out of the proceeds of the sales of the lots and will receive monthly amounts. However you will not know the total consideration for your services before each lot is sold and the amounts of the sales of the individual lots will depend on a negotiation process. Therefore this determination applies to you and you may choose to attribute the GST payable on the supplies that you make to the Owner in accordance with the attribution rule in the determination contained in Schedule 5 in GSTR 2000/29. 3 Are your acquisitions creditable acquisition (as defined in the GST Act) as a result of performing or undertaking the Project Activities outlined in the DRA? Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose (b) the supply of the thing to you is a taxable supply; (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. In addition section 11-15 of the GST Act provides, amongst other things that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. In your case you: · are registered for GST · will make various acquisitions in the course of your development enterprise and · in your factual situation these will not relate to either supplies that are input taxed or of a private or domestic nature. Therefore, in addition to the above factors, where the supply is a taxable supply to you and you provide or are liable to provide consideration for the purchases that you make in your own right in performing or undertaking the project activities under the DA, you will be making creditable acquisitions and entitled to input tax credits pursuant to section 11-20 of the GST Act.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.