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 acquisition and development of land (the Land). The land contains a combination of residential apartments and commercial premises. The arrangement involved the issue of a development lease by Entity B to you in order for you to carry out the development works, including building of the residential apartments and commercial premises and infrastructure, on the Land. Once the development works were completed you surrendered the development lease to Entity B and Entity B subsequently issued a title in the Land to you in order for you to sell residential units to end purchasers. The arrangement is governed by the following documents (the Transaction Documents): ● Contract for Sale ● Development Lease ● Deed ● Certificate of Title Under the Contract for Sale: ● Entity B will grant the development licence ● the purchase price is specified. Under the development lease: ● you hold the land for a specific term for the purposes of subdivision and constructing the works and building in accordance with the requirements of the deed ● you must apply for a title in the land after completion of the works ● you must surrender the development lease. Under the Deed: ● you and Entity B 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 Deed, Entity B will grant the land titles to you, stage by stage, and the development lease will be progressively surrendered ● you must, at your own costs and in accordance with the requirements within the Deed and the development lease, undertake the design, construction and completion of the works listed in 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 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 governed by the Transaction Documents is a development lease arrangement as described in GSTR 2015/2, in particular paragraphs 14 to 18. You were granted a development lease over the Land by Entity B for the purposes of subdivision and constructing the works and building in accordance with the requirements of the Deed. Upon your compliance with the requirements of the Deed, Entity B will grant you titles in the land, stage by stage, and the development lease will be progressively surrendered for that purpose. In your case a single title was issued over the Land. In granting the development lease and title under the agreement governed by the Transaction Documents, Entity B is making a supply of land (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 supplied 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 specific 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 specific 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 was to grant you, stage by stage, titles in the land and the development lease will be progressively surrendered for that purpose. Relevant separate titles were to be granted to you by Entity B when you complete construction of a stage of the works and have surrendered the development licence insofar as it relates to that stage. In your case, a single title was granted upon meeting the above requirements. You were required to apply for the titles in the land after the 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 Contract for Sale does 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 the 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.