Private ruling: GST and supply of rights to develop land
Date of advice: 26 June 2015
Published: June 2015

Ruling: Q1: Will your supply of the rights to develop the land located at the relevant Area to Entity B be a supply that is not made for consideration, pursuant to section 82-10 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes

Relevant facts and circumstances: The Area is an area of an Australian city. In yyyy, you were established as an Authority under a specific Act for the purpose of promoting and facilitating the development of the Area. The parties This ruling relates to the development of the Specified Precinct of the Area. The central parties (Parties) undertaking that part of the development are: • Entity B. The Developer is registered for GST. • the Authority Over the course of the development the Authority has entered into the Development Agreement and other contracts with the Developer to facilitate the Project. The Authority is registered for GST The development As part of its bidding proposal, the Developer prepared a comprehensive plan setting out the details of the proposed development of the Specified Precinct. Once the Developer was successful, its bid was approved by the Authority, and the Authority and the Developer entered into an agreement for the development (the Development Agreement). The Development Agreement governs the works to be undertaken. Documents relevant to the Project You provided copies of all of the relevant contracts. Extracts from the Development Agreement are as follows: Parties to the agreement are: The Authority and the Developer Recitals include: The Authority has agreed to sell the Developer the Land on the terms and conditions contained in the Land Sale Contract and this Agreement. The Authority and the Developer have agreed to the terms and conditions which will regulate the use and development of the Land. The Development Agreement provides: • for the release of the land to the developer in stages and lists the conditions precedent to the release of the land. • that the Authority is empowered to dispose of land under the relevant Act which permits the Authority to enter into agreements 'concerning the use or development of land in the Area'. • that the Developer must submit to the Authority for approval prior to submitting to the responsible authority under the Planning Scheme any: • Planning Approval application • other Approval application which is inconsistent with the Master Plan; and • application for amendment to the Planning Scheme(including any oral request). • the details in relation to the Developer's obligation to provide public infrastructure • that the Completion is required by the specified date. Development Plan: The Developer (with some input from the Authority) produces a Development Plan, which is varied over the course of the Project. The Development Plans are submitted to the relevant Minister and, if approved, are included in the relevant Planning Scheme. The Specified Precinct Development Plan, endorsed by the relevant Minister, is an example of such a Development Plan. As part of the Specified Precinct Plan, certain Public Infrastructure Works were to be constructed. Planning Permits Having obtained approval for a Development Plan for a the Specified Precinct, the Developer is also required to obtain permits under the relevant Planning Scheme in order to zone the land for construction (the Planning Permits). The Planning Permit includes requirements for certain works to be submitted and approved by the responsible authority in consultation with the Authority. Specifically, contractually under the Development Agreement, the Authority approves the ability for the Developer to submit the Planning Permits to the responsible authority. Nonetheless, only the responsible authority approves the Planning Permits. As the Authority is a referral authority, the responsible authority will, as part of its process, send the Planning Permits to the Authority for its consideration. Any response by the Authority, in its capacity as a referral authority, may be considered by the responsible authority in its deliberations. There is a time limit for referral authorities to respond by. If the time limit expires, it is assumed by the responsible authority that the referral authority has no objections. Land Sale Contracts Under the Development Agreement, the Authority and the Developer are required to enter into a Land Sale Contract for the purchase by the Developer of land. These sales are subject to the clause xxxx and the conditions precedent contained therein. The purchase of land by the Developer (or its nominee) for a specified purchase price occurs at each stage of the Development. Stage Deed Having developed a plan for a specific stage, the Authority and Developer may enter into a Stage Deed that, amongst other matters, provides additional detail in relation to the provision of Public Infrastructure Works.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 82-1 | A New Tax System (Goods and Services Tax) Act 1999 section 82-5 | A New Tax System (Goods and Services Tax) Act 1999 section 82-10

Reasons for decision: Summary: 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) • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act Section 82-10 concerns supplies made in return for rights to develop land 82-10 - Supplies by Australian government agencies of rights to develop land are not for consideration (1) The supply, by an *Australian government agency, of a right to develop land is treated as a supply that is not made for *consideration to the extent that it is made in return for another supply that complies with requirements imposed by or under an *Australian law. (2) It does not matter whether the other supply is made to the *Australian government agency. (3) If the other supply constitutes the payment of: (a) an *Australian tax prescribed by regulations made for the purposes of subsection 81-5(2); or (b) an *Australian fee or charge prescribed by regulations made for the purposes of subsection 81-10(2) ; this section overrides those regulations in relation to the payment. (4) This section has effect despite section 9-15 (which is about consideration). | Detailed Reasoning - Australian government agency: Division 82 requires that the right to develop land be supplied by an 'Australian government agency'. 'Australian government agency' is defined in section 195-1, to have the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA97), which in turn defines 'Australian government agency' to be: (a) the Commonwealth, a State or a Territory; or (b) an authority of the Commonwealth or of a State or Territory You are an agency established under State legislation, satisfying the definition of Australian government agency in subsection 995-1(b) of ITAA97. Therefore, you meet the definition of an Australian government agency for the purposes of Division 82. Whether the supply of development rights by the Authority is in return for Public Infrastructure Works that are imposed by or under an Australian law Whether the public infrastructure works is in return for a right to develop needs to be considered in light of the entire arrangement. Paragraph 222 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies states: Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purpose. We have considered the entire arrangement, including the development agreement, the development plan and the planning permits. In addition we have considered the relevant planning legislation which governs the approval processes for the development of land. The term, 'right to develop land' is not defined in the GST Act. The explanatory memorandum to Taxation Laws Amendment Bill (No. 3) 2002 explains that in respect of Division 82, the supply of a right to develop land includes an approval by an Australian government agency of such things as: • a re-configuration with no change in use (subdivision) • no re-configuration, but a material change in use (rezoning) • re-configuration with use as a right (permitted subdivision), and • re-configuration with a change of use (subdivision and rezoning). Under the relevant planning laws, permits are required to use or develop land. These planning laws allow for the inclusion of 'a particular agreement' which specifies certain conditions under which the land is to be used or developed. Under the laws, the public infrastructure works (specified in the Development Agreement (DA)) are conditions that are imposed under 'a particular agreement'. DA requires that you approve the planning approval application that is submitted to the responsible authority under the planning scheme. The public infrastructure works that are specified in the DA are included in the planning permits. Although the planning authority issues a planning permit to the developer, this permit also requires your approval. Therefore the supply of the public infrastructure works is required in order for the Developer to obtain development approval. On this basis, you are supplying a right to develop land for the purposes of Division 82 when you require a developer to undertake the public infrastructure works. An 'Australian law' is defined in section 995-1 of ITAA97: Australian law means a Commonwealth law, a State law or a Territory law The supply of the public infrastructure works is a supply that complies with the requirements imposed under an Australian law in the form of various Australian planning legislation referred to above. Therefore, pursuant to section 82-10, your supply of rights to develop land located at the Area to the Developer is a supply that is not made for consideration