Private ruling: GST and property development rights
Date of advice: 19 October 2016
Published: February 2017

Ruling: Q1: Does the land owner Company A (A) make a taxable supply of development right to Company B (B) under section 9-5 of the A New Tax System (Goods and Services Act) 1999 (GST Act) for consideration payable on the specified relevant dates? | A1: No. | Q2: Does A make a taxable supply of real property for the purpose of section 9-5 of the GST Act when it sells each lot of the Project Land? | A2: Yes

Relevant facts and circumstances: A is the owner of a property (Property). The property was held by A on capital account for rental purpose. A entered into an agreement with B in which A appointed B to provide services in relation to the Project Land (Agreement). A has obtained approval from the relevant council for the development of units on the Project Land. Under the terms of the Agreement, B provides services to A in return for a Service Fee. The Service Fee is determined when the property is sold. A as owner is entitled to gross proceeds arising from the sale (Gross Proceeds) and pays the service fee from the Gross Proceeds to B. The Agreement requires B to make advance payments of gross sales proceeds to A on specified dates (Payments). When a unit is sold the gross proceeds are held by B as agent for A and distributed to A following settlement of the contract of sale.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

Reasons for decision: Detailed Reasoning - Detailed reasoning: Under section 9-5 of the GST Act you make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; 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. 'Supply' is defined in section 9-10 of the GST Act to mean 'A supply is any form of supply whatsoever.' and include 'a creation, grant, transfer, assignment or surrender of any right;' (paragraph 9-10(2)(e) of the GST Act). A commercial transaction may involve exchanging various rights and obligations between parties to the transaction. In the present case A and B entered into an agreement whereby A agreed to appoint B to provide property development services in relation certain property in consideration for payment by the A to B of the Development Service Fee. As recipient of the development services A provides access to the Project Land for B to enter for the purpose of performing the development services. Under contract clauses, A agrees to make available access to the land to B to enable B to perform the services. Further contract clauses state that no payment is payable by B to A for any right and licence to access the Project Land for the purpose of performing the Developer's obligations under the Agreement. Allowing B access to the Project Land is, therefore, a condition of the Agreement rather than a provision of a supply by the A. In addition, the Agreement does not identify a supply of a development right or any other right for consideration. The Gross Sale Proceeds Instalments are calculated with reference to the Gross Sale Proceeds on the sale of the Lots to end purchasers. There is no connection between the payments of the Gross Sale Proceeds Instalments and any development right or any other right. Accordingly, there is no 'supply' made by the A for which the payments of the Gross Sale Proceeds Instalments are consideration. A does not make a taxable supply of development right under section 9-5 of the GST Act as it does not satisfy paragraph 9-5(a) of the GST Act. | Detailed Reasoning - Question 2:: Summary: Yes, A makes a taxable supply of real property for the purpose of section 9-5 of the GST Act when it sells each lot of the Project Land. | Detailed Reasoning - Detailed reasoning: Sections 40-65 and 40-75 of the GST Act determine whether a supply of real property that is residential premises is an input taxed supply. Subsection 40-65(2) states that a sale of residential premises is not input taxed to the extent that they are: ● commercial residential premises; or ● new residential premises other than those used for residential accommodation before 2 December 1998. The supplies of the Lots developed on the Project Land are supplies of new residential premises as defined in subsection 40-75(1) of the GST Act, as they: (a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or (b) have been created through substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. Additionally subsections 40-75(2), 40-75(2A), 40-75(2AA), 40-75(2B) and 40-75(2C) of the GST Act do not apply to this matter. The supplies of the Lots of the Project Land by A are, therefore, not input taxed supplies and are taxable supplies under section 9-5 of the GST Act as: ● the supplies are made for consideration; ● the supplies are made in the course or furtherance of an enterprise that A carries on; ● the residential premises are in Australia; and ● A and B are registered for GST. A, as the representative member of the GST group is liable to pay GST on the sale of each lot of the Project Land. The GST is calculated as 1/11 th of the selling price for each sale contract under section 9-75 of the GST Act. A is entitled to use the margin scheme in calculating the amount of GST on the sale if the requirements under Division 75 of the GST Act are met.

Question 1: Summary: No, A does not make a taxable supply of development rights to the B.