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$77m Building Works not non-monetary consideration for acquisition of land interest in calculating GST margin on sales of residential dwellings

Courtney Ensor, led by David Thomas SC, recently appeared for the Commissioner of Taxation in WYPF v Commissioner of Taxation [2021] AATA 3050. In this GST margin scheme case, the Administrative Appeals Tribunal considered whether certain components of development works cumulatively valued at $106 million constituted non-monetary consideration for a developer’s acquisition of 99 year leases (the Consequent Leases) of undeveloped land from the ACT Land Development Authority (SLA). The Tribunal (Senior Member Olding) affirmed the Commissioner’s view that the value of the $77 million “Building Works” were not non-monetary consideration for that acquisition.

The proceeding concerned the GST liability of a development company on sales of apartments in a residential development in the Australian Capital Territory. For the acquisition of the Consequent Leases of the undeveloped land from the SLA, the taxpayer had paid $14 million in monetary consideration and, by way of non-monetary consideration, carried out certain “Preparatory Works” valued at $29.7 million. The parties agreed that the completion of these Preparatory Works (including the provision of services, roadwork and underground infrastructure) formed non-monetary consideration for the acquisition of the leases.

Further to the Preparatory Works, the taxpayer carried out certain “Building Works” valued at $77 million to construct residential dwellings on the land. The Tribunal concluded that these works were not carried out to obtain the Consequent Leases but in pursuit of the taxpayer’s own business objectives of constructing and selling the apartments for profit.

The Tribunal drew on guiding principles from Commissioner of State Revenue (Victoria) v Lend Lease Development Pty Ltd (2014) 254 CLR 142 and Federal Commissioner of Taxation v Secretary to the Department of Transport (Victoria) (2010) 188 FCR 167 to reach the conclusion that the Building Works were not non-monetary consideration for the acquisition of the Consequent Leases. While the Building Works were a condition of the Consequent Leases, they were not a condition of the taxpayer’s acquisition of the Consequent Leases. Accordingly, the works were not constructed “in response to” the supply of the Consequent Leases but, rather, in satisfaction of a condition of the leases.

Following the sales of the residential dwellings, the taxpayer had lodged business activity statements (BAS) which treated the $14 million paid as consideration for the acquisition but without deducting the value of the Preparatory Works in calculating the margins on the sales. In this context, the Tribunal also considered s 142-10 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and whether the taxpayer had excess GST in relation to the value of the Preparatory Works which had been passed on to the purchasers of the residential dwellings. While the Tribunal rejected the taxpayer’s submission that it had not passed on any GST, it was satisfied that the taxpayer had discharged its burden of proving the assessments were in this regard excessive, noting that this was a “rare instance” and that the approach taken by the taxpayer in respect of its BAS had been “conservative”. Senior Member Olding accepted, but did not hold as determinative, that leaving the Applicant out of pocket for excess GST as a consequence of taking a conservative approach to paying GST pending clarification of its liability, would be “harsh” and “perverse”.

A copy of the Tribunal’s reasons can be found here.

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