Private ruling: GST and supply of rights
Published: May 2012

Ruling: Q1: Are the payments that you receive under the agreement between the group and the other entity consideration for a taxable supply? | A1: No, the payments that you receive under the agreement between the group and the other entity are not consideration for a taxable supply.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You were established to receive payments for a group of people (the group) You do not use the funds for any business activity. However, as a not-for-profit organisation, you provide assistance to people with their medical bills and with accommodation for those travelling to visit hospitalised relatives. Other than this, the payments that you receive are distributed to the group members. The group entered into the agreement with the other entity. According to the agreement: · The other entity proposes to construct the infrastructure and undertake project operations in Australia. · The other entity has not yet identified the full nature and extent of its project or the precise location of the activity to the group and is yet to comply with all procedures required under relevant legislation necessary to obtain the tenures and approvals necessary for the infrastructure and project operations. · The other entity has nonetheless requested the group to forego certain procedural rights under the relevant legislation to assist the other entity with land access for infrastructure and the project operations so that it can proceed in a timely manner. The other entity also wishes to obtain tenure for future projects in a timely and efficient manner. · In order to facilitate the project, the group is willing to forego certain procedural rights under the relevant legislation, in exchange for the procedures, protections and other benefits provided under the agreement. · The group consents to the grant and renewal of all project tenure. Under the agreement the other entity must make specified payments to the group.

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 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 184-1.

Reasons for decision: Summary: GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: 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 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. (*denotes a term defined in section 195-1 of the GST Act). An entity is defined in subsection 184-1(1) of the GST Act which states: Entity means any of the following: (a) an individual; (b) a body corporate; (c) a corporation sole; (d) a body politic; (e) a *partnership; (f) any other unincorporated association or body of persons; (g) a trust (h) a *superannuation fund. Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of certain key words and phrases used to define an entity. Paragraph 50 of MT 2006/1 provides that in Conservative and Unionist Central Office v. Burrell (Inspector of Taxes) the court considered some of the characteristics of an unincorporated association or body of persons as follows: · there are members of the association; · there is a contract binding the members amongst themselves; · there is a constitutional arrangement for meetings of members for appointing officers; · the members will normally be free to join or leave the association; · the association will normally continue in existence independently of any change to the composition of the association; and · as a matter of history, there will have been a moment in time when a number of persons combined to form the association. We consider that the group is a group of individual persons associated on the basis of their heritage and ancestry. It is not an entity as defined in paragraph 184-1(1)(f) of the GST Act. The group does not have the characteristics to be considered an entity for GST purposes. However, as individual persons, the members of the group are entities for GST purposes in accordance with paragraph 184-1(1)(a) of the GST Act. Throughout this ruling, the group refers to each individual person represented in the contract with the other entity. These individuals are the entities that make the supply for which the payments are made. Supply for consideration For the purpose of paragraph 9-5(a) of the GST Act there must be a sufficient nexus between a particular supply and a particular payment which is provided for that supply, for there to be a supply for consideration. A supply is defined in section 9-10 of the GST Act to mean any form of supply whatsoever and includes a creation, grant, transfer, assignment or surrender of any right. Consideration is defined in section 9-15 of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything, and any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. Under the agreement, the group is foregoing certain procedural rights that they have under the relevant legislation in order to assist the other entity with land access for the infrastructure and project operations. In exchange, the other entity will make payments to the group. The foregoing of certain procedural rights by the group is a supply for GST purposes which has a sufficient nexus to the payments that the other entity will make under the agreement. Therefore, there is a supply for consideration. Paragraph 9-5(a) of the GST Act is satisfied. Supply made in the course of an enterprise carried on For the purpose of paragraph 9-5(b) of the GST Act, we must determine whether the foregoing of their rights under the relevant legislation amounts to an enterprise carried on by the group. Section 9-20 of the GST Act provides that an enterprise includes an activity, or a series of activities, done: i. in the form of a business; or ii. in the form of an adventure or concern in the nature of trade. In the form of a business Paragraphs 176 to 178 of Miscellaneous Taxation Ruling MT 2006/1 state: 176. As the definition of 'business' is identical in the GST Act and the ITAA, it can be interpreted in a similar way. The meaning of 'business' is considered in Taxation Ruling TR 97/11. Although TR 97/11 deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business. | Detailed Reasoning - Indicators of a business: 177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law. 178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are: · a significant commercial activity; · a purpose and intention of the taxpayer to engage in commercial activity; · an intention to make a profit from the activity; · the activity is or will be profitable; · the recurrent or regular nature of the activity; · the activity is carried on in a similar manner to that of other businesses in the same or similar trade; · activity is systematic, organised and carried on in a businesslike manner and records are kept; · the activities are of a reasonable size and scale; · a business plan exists; · commercial sales of product; and · the entity has relevant knowledge or skill. We do not consider that foregoing of the group of certain procedurals rights under the relevant legislation is an activity done in the form of a business. Some of the main factors such as significant commercial activity, profit making intention, purpose of the activity and business like organisation are missing. In the form of an adventure or concern in the nature of trade Paragraph 244 of MT 2006/1 states: 244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. The rights of the group under the relevant legislation are not an asset used in carrying on an enterprise. We do not consider that the group forego their rights in a way that amounts to something in the form of an adventure or concern in the nature of trade. Rights and interests under the relevant legislation are communal, group and individual rights and interest, and can only be passed on under traditional laws and customs. As such, the rights and interests under the relevant legislation cannot be passed on in a commercial or businesslike manner. On a regular or continuous basis, in the form of lease, licence or other grant of an interest in property The group is foregoing certain procedural rights under the legislation. They are not leasing those rights, or conducting a business with the rights. Although the foregoing of their rights is a supply made for consideration, the supply is not made by the group in the course of an enterprise that they carry on. Paragraph 9-5(b) of the GST Act is not satisfied. As one of the requirements of section 9-5 of the GST Act is not met, the supply made by the group under the agreement is not a taxable supply. Accordingly, the payments that you receive under the agreement between the group and the other entity are not consideration for a taxable supply. There is no GST included in the payments.

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