GST and compulsory acquisition of land - legal 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 that it owns 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 that it owns is compulsorily acquired by a statutory authority as there is no supply of the land.

The entity is a property developer. The entity is registered for goods and services tax (GST). A statutory authority compulsorily acquires land that the entity owns.

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. One of the requirements of a taxable supply is that an entity makes 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'. Further, paragraph 25 of GSTR 2001/4 provides: Subsection 9-10(2) refers to two aspects of a supply; the thing which passes, such as goods, services, a right or obligation; and the means by which it passes, such as its provision, creation, grant, assignment, surrender or release.'

Therefore, in the GST Act, the term 'supply' covers not only the subject of the transaction - the thing that passes - but also includes the action by which the thing passes from one entity to another. In addition, by use of the word 'make' in the phrase 'you make the supply' in paragraph 9-5(a) of the GST Act, there is a requirement for a supplier to take some action to cause a supply to be made. This means that the entity, the property developer, must take some action or do something for a supply of the land to occur.

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 from any other interests. The statute has the effect of extinguishing the property developer's interest in the land.

In view of the facts, it is necessary to consider if there is a supply of the land in these circumstances. A transfer of the legal interest in land is within the definition of supply in section 9-10 of the GST Act. Also, the surrender of real property is within the definition of supply.

However, the entity did not take any action to cause its legal interest to be transferred, or surrendered to the relevant authority. The legal interest was divested from the entity by operation of the statute, upon gazettal of the acquisition notice. There is no supply.

Accordingly, the entity is not making a taxable supply under section 9-5 of the GST Act when land that it owns is compulsorily acquired by a statutory authority. Note: Action by the legal owner of the land to appeal the amount of compensation provided by the relevant authority does not affect whether there is a supply. Regardless of the outcome of this action, the vesting of the land in the relevant authority will still occur as the result of the gazettal and the entity will not have done anything for a supply occur.