Private ruling: GST and compulsory land acquisition
Date of advice: 1 March 2021
Published: February 2022
Ruling period: The event which will determine the relevant start and end date will be the disposal of land by the owner to XXXXX as discussed in Annexure A to this application.
Date scheme commenced: 25 September 20XX

Ruling: Q1: Will the supply of the Land by the owner be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services) Tax Act 1999 ("GST Act) when made by way of agreement? | A1: Yes. | Q2: Will the supply of the Land by the owner be a taxable supply pursuant to section 9-5 of the GST Act, if made under compulsory acquisition? | A2: No. | Q3: Will any compensation payable by the acquirer be consideration pursuant to section 9-15 of the GST Act for a taxable supply by the owner under compulsory acquisition? | A3: No.

Relevant facts and circumstances: In xxxx, the owner purchased a plot of land. Dwellings were constructed soon after acquisition. Each of the dwellings have been continually occupied as main residences of the owner. Infrastructure and sheds have also been constructed to facilitate farming and housing of pig and beef cattle. The property size was xx acres. The property has been used for carrying on an enterprise. There has been no other major development on the property. On xx xx xxxx, a government entity, wrote to the owner confirming that they intend to acquire part of the property. The owner is registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services) Tax Act 1999 sections 9-5, 9-15

Reasons for decision: Summary: Section 9-5 of the GST Act provides that an entity makes a taxable supply under that Act if: • it makes the supply for consideration; • the supply is made in the course or furtherance of an enterprise that the entity carries on; • the supply is connected with the indirect tax zone; and • the entity is registered or required to be registered (for GST). However, the supply is not taxable to the extent it is GST-free or input taxed. 'Supply' has the meaning given by section 9-10 of the GST Act and is any form of supply whatsoever. The supply will be taxable if made for consideration; in the course or furtherance of an enterprise the owner carries on; the supply is connected with the indirect tax zone and the owner is registered for GST. Further, the supply of land compulsorily acquired and coming under the circumstances described above is neither GST-free nor input-taxed. Therefore, the supply of the land will be taxable when made under section 9-5 of the GST Act. Note: When discussing the meaning of 'in the course or furtherance' paragraphs 28 and 29 of Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment under Division 132? (GSTR 2004/8) provide that: 28. For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998[18] states: 'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361. 29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent. Therefore, we consider the supply of the land is connected to the owner's enterprise. 2. Goods and Services Tax Ruling GSTR 2006/9 GST: supplies (GSTR 2006/9), provides guidance in relation to the identification and characterisation of supplies. Land acquisitions by government authorities are discussed in paragraphs 80 to 84 of GSTR 2006/9. Paragraph 82 states that 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. Where a government entity proceeds to compulsorily acquire land the owner's interest in the property will be vested in the government entity without the owner taking any action to transfer its interest in the land. The relevant legislation compulsorily enforces the transfer. Accordingly, under compulsory acquisition the owner will not be making a supply when its interest is taken to be held in the name of the government entity. As the owner will not make a supply, the requirements of section 9-5 of the GST Act will not be satisfied. Therefore, the owner will not make a taxable supply if a government entity compulsorily acquires the land. 3. Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is 'in connection with' a supply and 'in response to' or 'for the inducement' of a supply. Thus, 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. The issue of whether or not compensation payable by a government authority is consideration or a taxable supply by the person whose land is resumed is considered in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies . Paragraphs 81 to 84 of GSTR 2006/9. Paragraph 84 of GSTR 2006/9 is reproduced below: 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. The compensation relates to the loss suffered by the claimants on the extinguishment of their interest in the land. We do not consider the compensation under the facts described above has a sufficient nexus with the supply of the land compulsorily acquired and is therefore not consideration.