Private ruling: GST and development lease arrangements with a government agency
Date of advice: 27 February 2017
Published: June 2017

Ruling: Q1: Did you make a taxable supply of development services to the government agency in respect of the works you completed on the Land as part of the Project? | A1: Yes. | Q2: Are the development services you provided to the government agency non-monetary consideration for your acquisition of the Land from the government agency? | A2: Yes.

Relevant facts and circumstances: Entity A (You) is registered for GST. You have entered into an arrangement with a government agency (Entity B) for the purchase and development of land (the Land). The Land will contain predominantly residential premises and a minor amount of commercial premises. The legal and commercial arrangement underpinning the development is: ● Prior to the sale to you, Entity B was the owner of the Land. ● There have been no previous sales (GST-free or otherwise) of the Land. ● Block 1 and Block 2 were purchased from Entity B under separate contracts of sale (Contracts of Sale). ● A development lease was executed by Entity B under the Contract for Sale for Block 1 (the initial development lease). ● A Deed was executed by Entity B and you (the Deed). Under the Contract for Sale (Block 1): ● Entity B will grant the development lease ● the purchase price is specified. Under the Contract for Sale (Block 2): ● Entity B will grant the development lease ● the purchase price is specified. Under the development lease (Block 1): ● you hold land for a short-term for the purpose of subdivision and constructing the works and building in accordance with the deed ● you must apply for titles in the land after completion of the works ● you must surrender the development lease. Under the Deed: ● Entity B and you agree that an estate will be developed on the Land in the manner contemplated by the Deed and the development lease. ● Upon compliance with the requirements of the development lease and Deed, Entity B will grant, stage by stage to you titles in the land and the development lease will be progressively surrendered. ● You must, at your own costs and in accordance with the requirements within the Deed and development lease, undertake the design, construction and completion of the works listed in the Deed. The Deed specifies the development lease over Block 2 will not be granted until you have relocated the infrastructure to an area within Blocks 1. Following the relocation of the infrastructure from Block 2, the development lease (in respect of Block 1) will be surrendered and a new development lease re-granted in respect of Blocks 1 and 2 (the consolidated development lease) on terms and conditions substantially similar to the initial development lease.

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 Division 81, and | A New Tax System (Goods and Services Tax) Act 1999 Division 82.

Reasons for decision: Summary: Section 9-5 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 the indirect tax zone (Australia), and d) 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. Goods and Services Tax Ruling GSTR 2015/2 Goods and services tax: development lease arrangements with government agencies explains the GST treatment of transactions in the context of development lease arrangements. It is accepted that the arrangement between you and Entity B is a development lease arrangement as described in GSTR 2015/2, in particular paragraphs 14 to 18. You were granted a development lease over Block 1 of the Land by Entity B for the purposes of subdivision and constructing the works and building in accordance with the requirements of the Deed. You will not be granted a development lease over Block 2 until you have relocated the infrastructure to an area within Block 1. Following this the initial development lease will be surrendered and a new development lease will be granted in respect of Blocks 1 and 2 (the consolidated development lease) on terms and conditions substantially similar to the initial development lease. Upon your compliance with the requirements of the Deed, Entity B will grant you, stage by stage, titles in the land and the development lease will be progressively surrendered for that purpose. In granting the development lease, and then the subsequent replacement consolidated development lease and the titles in the land under the agreement, Entity B is making a supply of land to you, and you are making a corresponding acquisition of land. In completing the development works on the Land, pursuant to the development lease and in accordance with the Deed, you make a supply of development services to Entity B. You are making a supply of development services and you meet all the requirements of section 9-5, including, as discussed below, the requirement that you make the supply for consideration. Accordingly, you are making a taxable supply of development services to Entity B. This supply is attributable as outlined in GSTR 2015/2. The receipt of the Land by you from Entity B is non-monetary consideration for the development services you supply to Entity B if there is sufficient nexus between the supply of the development services and the supply of the Land. Paragraph 35 of GSTR 2015/2 provides: 35. There is a sufficient nexus between the development services and the transfer of freehold or grant of a long term lease if the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works. ... For example, the developer only becomes entitled to the freehold or long-term lease on completion of the development or a particular stage of the development. The development lease was granted for the purpose of undertaking the development. Upon your compliance with the requirements of the Deed, Entity B will grant to you, stage by stage, titles in the land and the development lease will be progressively surrendered for that purpose. Relevant separate titles will be granted to you by Entity B when you complete construction of a stage of the works and have surrendered the development lease insofar as it relates to that stage. You are required to apply for titles in the land after completion of construction of a stage of the works. Applying the relevant principles in GSTR 2015/2 to the above facts, we consider that the supply of the land to you by Entity B is non-monetary consideration for your supply of the development services to Entity B and conversely, your supply of the development services to Entity B is in-turn non-monetary consideration for the supply of the land to you by Entity B. We also note that the Contracts for Sale provide for monetary payment to be made by you. Therefore the payment of this amount is also consideration for the supply of the Land by Entity B. On the facts submitted to us, the provision of your consideration for the supply of the land is not a payment that is an Australian tax, fee or charge as defined in section 195-1 and therefore Division 81 has no application. Furthermore, your supply of development services is made in return for a supply of land to you by Entity B (as opposed to a supply of a right to develop the land) and therefore Division 82 also has no application.

Reasons for decision: In this reasoning, please note: | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au | ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act