Courtney Ensor and Keni Josifoski appeared for the successful Commissioner of Taxation in the recently decided ZKSM and Commissioner of Taxation [2025] ARTA 1298.
The taxpayer was a trustee company who engaged in large scale englobo land development in the Australian Capital Territory. The taxpayer entered into development lease arrangements with the authorised land authority of the ACT for which it provided a significant amount of cash and certain ‘Development Services’. Under those arrangements, the land authority provided the company with short-term leases over the englobo land and, when the land was satisfactorily developed by the taxpayer through the provision of the Development Services, the land authority provided 99-year Crown leases which the taxpayer was then entitled to on-sell to individual residential property purchasers.
This proceeding concerned the GST liability of the taxpayer under the margin scheme in Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) on the sales of those individual residential properties. The applicable margin scheme calculation involves subtracting the taxpayer’s acquisition costs (including the non-monetary consideration of the Development Services) from the sale price of each long-term lease to the individual purchasers.
The principal issues in dispute were:
- whether the taxpayer was entitled to rely upon the valuations of land it procured in calculating the value of the non-monetary consideration for its acquisition of the land. This involved consideration of precisely what was to be valued for the purpose of the calculating the taxpayer’s margin, and specifically whether the long-term leases were to be valued in, or in isolation from, their contractual context, being the transformation of a large parcel of englobo undeveloped land into individual residential properties available for resale;
- whether the Commissioner was bound to accept the taxpayer’s approach to identifying the GST inclusive market value of the non-monetary consideration by virtue of the taxpayer’s reliance on various private and public rulings made by the Commissioner; and
- whether the taxpayer was required to further apportion the value of the non-monetary consideration for its acquisition of the land to account for additional amounts paid to it by the land authority in respect of the GST components on invoices issued in respect of the Development Services.
The Commissioner succeeded in respect of each issue in dispute. Notably, the Tribunal held that the taxpayer’s approach to calculation of its GST margin required valuation of the long-term leases in their contractual context, including the fact that the land was purchased as an englobo parcel.
A copy of the Tribunal’s reasons can be found here.
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