Private ruling: GST and compulsory acquisition of land
Date of advice: 27 October 2017
Published: March 2018

Ruling: Q1: Are you making a supply as defined in section 9-10 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) as a result of the compulsory acquisition of your landholding at a specified location (the Property) by another department? | A1: No | Q2: Does the extinguishment of your interest in your landholding in the Property by compulsory acquisition give rise to a GST liability, pursuant to section 9-40 of the GST Act? | A2: No | Q3: Are you making a creditable acquisition, pursuant to section 11-5 of the GST Act in the event your claim for compensation is satisfied, in whole or in part, by non-monetary compensation, including the transfer of land by the other department? | A3: No.

Relevant facts and circumstances: You are registered for GST effective from 1 July 2000. You are a body corporate constituted under appropriate State legislation and preserved and continued as agent for the Crown in right of the relevant State. You carry on a number of activities. You currently own property situated at a specified location (the Property). The combined area of the Property is approximately xxxx hectares. The relevant State Government (Cabinet) advised you that a particular development at the Property was no longer in alignment with Government priorities (at that time). Cabinet determined that your landholding at the Property should not be developed for urban purposes and that substitute land for urban development should be provided to you on a ‘no disadvantage’ basis. That is, you should be compensated for the acquisition of the Property with the transfer of substitute land of an equal or similar value to allow you to continue to perform your functions. Cabinet has approved a set of identified sites (Tranche 1) as being suitable for urban development by you in accordance with its powers and responsibilities and Cabinet has requested that a second tranche of land be subsequently submitted to Cabinet. A further set of identified sites (Tranche 2) were considered for suitability for urban development by you. Cabinet determined that the other department would compulsorily acquire the entire Property for future public and/or complementary purposes. Cabinet also approved the transfer of assignment of development rights over the Tranche 2 sites at no cost to you. The compulsory acquisition of the Property has been initiated by the other department at the direction of Cabinet. The other department will issue a notice of intention to take the Property (if required). You have not requested that the other department acquire the Property. If the Property is compulsorily acquired, you will not enter into any binding agreement, understanding or arrangement with the other department (and/or Cabinet) in relation to the disposal of the Property prior to the compulsory acquisition. If the Property is compulsorily acquired you will request to be compensated in the form of a transfer of property.

Relevant legislative provisions: A New Tax System (Goods and Services Tax Act) 1999 Section 9-5 | Section 9-10 | Subsection 9-10(1) | Paragraph 9-15 | Section 9-40 | Section 11-5 | Paragraph 11-5(c)

Reasons for decision: Summary: The term 'supply' is broadly defined for GST purposes and is defined in subsection 9-10(1) to include, 'any form of supply whatsoever'. The meaning of the term 'supply' is discussed further in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies and contains ten propositions for the purpose of analysing a transaction to identify the supply or supplies made in that transaction. Paragraphs 71 to 91 of GSTR 2006/9 concern proposition 5 which refers to the principal that to 'make a supply' an entity must ‘take some action’ of doing something. In your case, this means that you must take some action or do something for a supply of the land to occur. Paragraphs 80 to 84 of GSTR 2006/9 provide guidance on the legal effect of a legislative acquisition of real property: 80. Various government authorities are empowered by legislation to acquire an interest in real property. Two common mechanisms employed by legislation are: ● the vesting of the interest in the relevant government authority and extinguishing any previous interests in the real property; and ● the particular statute may allow the government authority to acquire the real property by agreement. | Detailed Reasoning - Vesting in the government authority: 81. An example of vesting is provided by section 20 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) , where the required acquisition notices are gazetted, the relevant land is: ● 'vested in the authority of the State acquiring the land'; and ● 'freed and discharged from all estates, interests, trust, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land'. The entity whose interest in the land is extinguished is compensated for the loss of that interest. That entity may agree to the compensation determined by the Valuer-General and execute a form of release. If the entity disputes the compensation amount, there is provision for payment of 90% of the initial valuation until the matter is resolved. 82. The effect of the gazettal notice is that the legal ownership of the land, described in the notice, is vested in the authority acquiring the land, and that the land becomes freed from any other interests. The entity's interest in the land, whether legal or equitable, is extinguished. When land vests in an authority in consequence of a gazettal notice, it is necessary to examine the relevant facts and circumstances to determine whether or not the owner makes a supply of the land to the authority. In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority. 82A. However, in other cases the owner may do something or undertake some action such that it does make a supply of the land that vests in the authority. For example, see the decision in Re Hornsby Shire Council v. Commissioner of Taxation in which the Administrative Appeals Tribunal found that, in the circumstances the owner, CSR Limited, made a supply of its land by way of entry into an obligation and the surrender of its land when it issued a notice, pursuant to statute, compelling the Hornsby Shire Council to acquire its land. 83. Some statutes provide that land remaining, where only part of the land (the 'target land') is to be compulsorily acquired, will also be compulsorily acquired if the owner and the acquiring authority agree that the remaining land will be of no practical use or value to the owner. In cases where, prior to the vesting of the target land, the owner and authority agree that the remaining land will also be acquired, and the remaining land is acquired contemporaneously with the target land, it is the Commissioner's view that the owner does not make a supply of the remaining land to the acquiring authority. Although the owner may have requested that the remaining land be acquired, the agreement reached between the parties, and the resulting acquisition of the remaining land is integral, ancillary or incidental to the compulsory acquisition of the target land. 83A. In contrast to the circumstances described in paragraph 83 of this Ruling, the land owner may, at a time subsequent to the authority's acquisition of the target land, request that the authority acquire the remaining land on the basis that it is of no practical use or value to the owner. Consistent with the decision in Re Hornsby Shire Council v. Commissioner of Taxation in these circumstances it is the Commissioner's view that the owner has taken some action by requesting that the remaining land be acquired and makes a supply of the remaining land by way of surrender to the authority. In such cases, the acquisition of the remaining land is not integral, ancillary or incidental to the authority's compulsory acquisition of the target land. 84. Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner. In summary, the above provides that a landowner does not make a supply where there is a compulsory acquisition of land provided the landowner does not initiate the process. In this case the other department has the authority to acquire real property pursuant to provisions relevant State statutes. The other department has been directed by Cabinet to acquire the Property pursuant to such statutes. You have not requested that the other department acquire the Property and you will not enter into any binding agreement, understanding or arrangement with the other department (and/or Cabinet) in relation to the disposal of the Property prior to the compulsory acquisition. Given the above, we consider that in the circumstances outlined above, you will not be making a supply as defined in section 9-10 as a result of the compulsory acquisition of your landholding of the Property by the other department. | Detailed Reasoning - Question 2: Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone, and ● you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. For an entity to make a taxable supply, it must make a supply. As previously established, you will not be making a supply as a result of the compulsory acquisition of your landholding in the Property. Consequently, you will be not making a taxable supply when the Property is compulsory acquired by the other department. | Detailed Reasoning - Question 3: Section 11-5 provides that you make a creditable acquisition where all of the following conditions are met: ● you acquire anything solely or partly for a creditable purpose; and ● the supply of the thing to you is a taxable supply; and ● you provide, or are liable to provide, consideration for the supply; and ● you are registered, or required to be registered for GST. One of the requirements for a creditable acquisition is that you provide, or are liable to provide, consideration for the supply to you. The Property will be compulsory acquired by the other department who will transfer Tranche 1 and Tranche 2 to you as compensation. As previously established, you will not make a supply to the other department, i.e. you will not supply the Property as consideration for Tranche 1 and Tranche 2. Section 9-15 provides that ‘consideration’ includes any payment, or any act or forbearance, in connection with a supply of anything. We consider that the Property being compulsorily acquired is not a payment or an act or forbearance, in connection with a supply of anything. Accordingly you have not provided consideration. As paragraph 11-5(c) has not been satisfied, you have not made a creditable acquisition.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions. | Reasons for decision: Note: In this reasoning, unless otherwise stated, | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au