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The Australian Taxation Office (ATO) published the GST Ruling GSTR 2015/2 (The Ruling) on Wednesday 3 June.
The Ruling sets out the Commissioner of Taxation’s views on the GST treatment of certain transactions arising in the context of development lease arrangements entered into between government agencies and private developers.
Development lease arrangements are generally entered into between government agencies and private developers. These arrangements typically consist of the following features:
- The private developer (developer) undertaking a development on land owned by a government agency in accordance with the terms of a written agreement between the two parties; and
- The government agency supplying the land by way of freehold or grant of a long-term lease to the developer subject to the development being undertaken in accordance with the terms of the written agreement. That is, the developer becomes entitled to transfer of the freehold or grant of a long-term lease when the development is completed.
The Commissioner has previously provided his views on development lease arrangements in his Draft GST Ruling GSTR 2014/D5.
The Ruling considerations
The Ruling considers the relevant principles for identifying and characterising the various supplies that are made for consideration under a development lease arrangement, including:
- whether the grant of a short-term lease or licence (development lease) by the government agency to allow the developer to undertake the development on the land is a supply for consideration;
- whether, in completing the works on land owned by the government agency, the developer makes a supply of development services to the government agency for consideration; and
- whether the sale of the freehold or grant of the long-term lease of the land by the government agency is a supply for consideration, and whether any consideration the developer provides for supply of the land includes undertaking of the development works on land owned by the government agency.
It also considers the extent to which the consideration for particular supplies made under a development lease arrangement includes consideration that is not expressed as an amount of money (non-monetary considerations). The Ruling looks at how the value of any non-monetary consideration provided for supplies made in the context of a development lease arrangement may be determined.
It also considers the attribution, under Division 29 of the GST Act, of the GST liabilities and input tax credit entitlements that may arise under development lease arrangements.
The GST outcomes under the Ruling
The supplies made under a development lease arrangement are:
- the supply of land by the government agency to the developer by way of lease or licence; and
- the supply of development services by the developer to the government agency.
Supplies made for consideration under a development lease arrangement
Where the terms of the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works:
- supply of the land by the government agency is consideration for the developer's supply of development services; and
- supply of development services by the developer is, in turn, consideration for the supply of land by the government agency.
Where the developer completes additional works on land retained by the government agency:
- the developer makes a supply of development services to the government agency; and
- supply of the land by the government agency is consideration for this supply of development services by the developer if the terms of the development lease arrangement make the government agency's
- supply of land subject to or conditional upon the developer completing the additional works, and Division 82 does not apply.
The Ruling is largely the same as the previously issued Draft GST Ruling GSTR 2014/D5 and includes an additional example on the attribution of GST payable on supply of land by the government agency when a lump sum payment is made on execution of the agreement and when no invoice was issued.
We welcome the Commissioner’s ruling as it provides the Real Estate & Construction industry with clarity, in respect of the nature of development works conducted by a private developer. It also provides a number of examples which will be a useful guide for taxpayers in the industry.
Under this Ruling, a developer will in certain circumstances be able to use the cost of their services as the cost base to calculate GST payable for sales it makes under the margin scheme upon completion of the development. This may prove advantageous to the developer under some development lease arrangements.