GST and compulsory acquisition of land - equitable interest

Is the entity, a property developer, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when land in which the entity held an equitable interest, as the purchaser under a contract of sale, is compulsorily acquired by a statutory authority?

No, the entity is not making a taxable supply under section 9-5 of the GST Act when land in which the entity held an equitable interest is compulsorily acquired by a statutory authority, as there is no supply of equitable interest.

The entity is a property developer. The entity is registered for goods and services tax (GST). The entity has entered into an unconditional contract to purchase land. As a result of entering into this contract, the entity holds an equitable interest as the beneficial owner of the land.

Prior to settlement of this contract, a statutory authority compulsorily acquired the land. In accordance with the relevant State Act dealing with compulsory acquisitions, the statutory authority made the compulsory acquisition by way of gazettal of an acquisition notice. The effect of a gazettal under this particular state legislation (Statute) is that: (a) the legal ownership of the land, described in the notice, is vested with the particular authority acquiring the land, and (b) the land becomes freed and discharged from all estates, interests, trusts, restrictions, dedications, reservations, easements, rights, charges, rates and contracts in, over or in connection with the land.

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act).

The term 'supply' is a broad concept for GST purposes and is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. The meaning of the term 'supply' is discussed in Goods and Services Tax Ruling GSTR 2001/4. Paragraph 22 of GSTR 2001/4 provides that a supply is essentially 'something which passes from one entity to another'.

The entity has entered into an unconditional contract to purchase land. As a result of entering into this contract, the entity holds an equitable interest as the beneficial owner of the land.

Prior to settlement of the contract, the statutory authority compulsorily acquired the land by way of gazettal of an acquisition notice. The effect of the gazettal is that the legal ownership of the land, described in the notice, is vested in the particular authority acquiring the land and the land becomes freed and discharged from all estates, interests and contracts in, over or in connection with it.

As such, the equitable interest held by the entity was not transferred under the compulsory acquisition process but was extinguished when the land was divested from the legal owner upon gazettal of the acquisition notice. There was no provision of the entity's equitable interest to any party, because the interest ceased to exist. Therefore, there is no supply of the entity's equitable interest.

Accordingly, the entity is not making a taxable supply under paragraph 9-5(a) of the GST Act when land in which the entity held an equitable interest, as the purchaser under a contract of sale, is compulsorily acquired by a statutory authority.