Private ruling: GST and development works
Date of advice: 1 November 2018
Published: March 2019

Ruling: Q1: Does company A make a taxable supply of development services to entity B in respect of the works it is required to undertake land as part of a Project? | A1: 1. Yes, to the extent that the works are: a. outlined in a specified clause of the Deed b. to be retained by the entity B, and c. required to be completed under the Deed and subject to a certificate of practical completion. 2. No, to the extent that the works are permitted building works or other works carried out by company A. | Q2: Are the development services provided by company A to the entity B non-monetary consideration for the supply of the land from the entity B to company A? | A2: Yes, to the extent that the development services are works described within answer 1 to question 1.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The project consists of a combination of residential units and commercial premises. The agreement in relation to the sale and development of the Land is governed by transaction documents. The Contract for Sale provides for the issue of a Holding Lease by the entity B to company A, on substantially upon the terms and conditions of the specimen lease attached to the contract. There is no express obligation contained in the Contract of Sale or Lease for the entity B to enter into the Deed. However, it is clear that it is the parties’ intention that the Deed will be entered into by the parties on or around the same time as the grant of the Lease. The term ‘works’ is defined in the Lease and Deed as follows: Holding Lease – “Works” means all the works and activities which the lessee is or may be required to execute or engage in under the Deed and includes design, remedial work, temporary work and variations of work. Deed – “Works” means all the Works and Activities which the Developer is or may be required to execute and engage in under the Deed and includes all design, variations, remedial work and temporary work as specified in Annexure A1.1 and Annexure A2. Company A is registered for GST. Under the Contract of Sale: The Price is specified as $xxx (inclusive of GST) (the Purchase Price ). Annexure to the Deed Specifies that company A is required to undertake works. Clause Y sets out that: ● building works are permitted on the leased land by the company A in accordance with the Lease, and ● these building works are not included in the works required to be completed under the Deed and are therefore not subject to the issue of a Certificate of Practical Completion under the Deed The long-term leases are granted upon compliance with the Lease and the Deed. The Lease is granted to use the premises only for the purpose of subdivision and constructing the works and building in accordance with the requirements of the Deed.

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 81 | A New Tax System (Goods and Services Tax) Act 1999 Section 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. Supply The meaning of ‘supply’ is given in section 9-10. A supply is any form of supply whatsoever and includes: ● A supply of goods ● A supply of services ● An entry into an obligation to do anything. Company A entered into an arrangement for the acquisition and development of land for a project. The ‘works’ are defined in the Lease as ‘activities which the company A is or may be required to execute or engage in under the Deed and includes design, remedial work, temporary work and variations of work. The term ‘building’ is also defined in the Lease as ‘any building or structure, constructed or partially constructed or to be constructed, as the context permits or requires, on or under the land’. The proposition that an entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient) was noted by the High Court in Commissioner of Taxation v. MBI Properties Pty Ltd [2014] HCA 49 at [34]. The provision of services by company A is a supply made to entity B. Supply for consideration The requirement in s 9-5(a) is that the supply is made for consideration. Section 9-15 provides that consideration includes any payment in connection with a supply of anything and any payment in response to or for the inducement of a supply of anything. A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form 1 , such as: ● providing goods ● granting a right or performing a service (an act), and ● entering into an obligation, for example to refrain from selling a particular product (a forbearance). A payment will be consideration for a supply if the payment is ‘in connection with’, ‘in response to’ or ‘for the inducement’ of a supply. 2 Furthermore, for the reasons given in GSTR 2001/6 at paragraph 69-70, the Commissioner takes the view that ‘in connection with’ is a wider concept than ‘for’ and a requisite connection between consideration and property is established where ‘the receipt of the payment has a substantial relation, in a practical business sense, to that property’ 3 .. Pursuant to the Contract of Sale, the price of the Land is specified as $xxxx (inclusive of GST). However, company A is also required to undertake works on the Land before long term leases are granted. The works could constitute non-monetary consideration but in order to form part of the consideration for the acquisition of the land a relevant nexus must be established. The Transaction Documents support that there is a connection between the services supplied by company A to entity B and the supply of the Land by entity B to company A. The Lease was granted to company A for the purpose of subdivision and constructing the works and building in accordance with the requirements of the Deed. 4 Clause X of the Deed provides that upon compliance with the requirements of the lease and the Deed, the entity B will grant one or more Consequent Leases Clause Y of Annexure of the Deed provides a list of works to be completed. Paragraph YY discusses Building Works and states: Building works are permitted on the leased land by the Lessee in accordance with the Lease. These building works are not included in the works required to be completed under the Deed and are therefore not subject to the issue of a Certificate of Practical Completion under the Deed. The works to be completed before the issue of the Consequent Leases are those referred to clause Y of Annexure. In the Commissioner’s view, having regard to all the facts and circumstances of an arrangement, a sufficient nexus is established between the services and the transfer of land if the lease arrangement makes the supply of the land subject to or conditional on the developer completing specified works. The supply of development services so specified moves the supply of land to the developer. The Certificate of Practical Completion is a prerequisite for the issue of Consequent Leases. The Transaction Documents make it clear that the building works are not included in the works required to be completed under the Deed and are therefore not subject to the issue of a Certificate of Practical Completion under the Deed. The building works are permitted on the leased land by the Lessee in accordance with the Lease, before the transfer of the land to the company A under the Consequent Leases. However, the grant of the Consequent Leases are not conditional on all building works being completed on the Land. An example of building works which are not a pre-requisite to the issuing of the consequent leases is the dwellings that are permitted to be constructed. In contrast, the development services referred to in clause Y of Annexure that must be completed under the deed before a certificate of practical completion is issued do have the relevant nexus. Only those development services referred to in clause Y of Annexure that are required to be completed before a certificate of practical completion is issued have the relevant nexus to the consideration provided by the entity B. Company A therefore provides only those specified development services as consideration to entity B for the supply of land. The supply is made in the course or furtherance of an enterprise that you carry on The supply of development services is made in the course of company A’s enterprise. The supply is connected with the indirect tax zone (Australia) As per the facts stated above the supply of services is made in Australia You are registered, or required to be registered, for GST As per the facts stated above, company A is registered for GST. As stated above, there is a sufficient nexus between the services specified in answer 1 above, supplied by company A to entity B and the supply of the Land by entity B to company A. The Lease was granted for the purpose of subdivision and constructing the works and building in accordance with the requirements of the Deed. Upon your compliance with the requirements of the Lease and Deed, entity B will grant one or more Consequent Leases. It is the Commissioner’s view that for real property transactions, ‘consideration’ has the relevant nexus where it is anything that ‘moves’ the transfer of the land. 5 Only those works referred to in clause Y of Annexure move the transfer of the land and are non-monetary consideration for the supply of the land by entity B. The building works that are specified in the contract documents but that are not required under the Deed to be performed before the issue of the certificates of completion, but are merely permitted to be done from the time the holding lease is issued do not ‘move’ the transfer of the land by way of lease. Those building works outside the scope defined in answer 1 are not consideration for the supply of the land. We also note that the Contract for Sale provides for a monetary payment of $xxxx (inclusive of GST) to be made by company A for the supply of land by entity B. Therefore the payment of this amount is also con sideration paid by company A for the supply of the Land by entity B. On the facts submitted to us, the provision of company A’s 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, company A’s supply of services is made in return for a supply of land to entity B (as opposed to a supply of a right to develop the land) and therefore Division 82 also has no application.