Issue
Are the native title claimants making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when: • their native title rights are extinguished as a result of the compulsory acquisition of land by a government authority, and • they enter into a deed under which they agree to the compulsory acquisition, the extent of compensation to be provided and to withdrawing their objections made under the Native Title Act 1993 (NTA) to the compulsory acquisition?
Decision
No, the native title claimants are not making a taxable supply under section 9-5 of the GST Act.
Facts
A government authority is compulsorily acquiring the subject land and interests relating to that land, including the native title rights, under the powers contained in the relevant statute allowing compulsory acquisition of land by authorised entities.
The effect of compulsory acquisition under statute is that every registered and unregistered interest in the land is extinguished, and each person who formerly held such an interest has that holding converted into a claim for compensation.
As required by the NTA, the government authority has notified that it is acquiring the subject land, and various groups of claimants have registered their native title claims over the subject land.
The government authority has negotiated with each of the registered native title claim groups as required by the NTA, as to just compensation for the extinguishment of their rights over the subject land, and has entered into an agreement, the deed, with them.
The deed sets out, among other things, that: • The native title claimants accept the compulsory acquisition and extinguishment of any and all native title rights and interests in the land and agree to withdraw the objections made under the NTA to the compulsory acquisition, and • The government authority undertakes to provide for compensation to be made to the native title claimants in the form of funding, land and for services to be provided in the relevant area.
Reasons for Decision
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 defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. Under subsection 9-10(2), supply includes a surrender of any right and an entry into an obligation.
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 native title claimants must take some action or do something to cause a supply to occur for there to be a supply under the GST Act.
The subject land is being compulsorily acquired by the government authority and used for a particular purpose. Although the native title applicants have entered into a deed under which they accept the compulsory acquisition and the amount of compensation, this agreement does not cause the native title applicants' rights to be extinguished. The native title claimants' rights over the land are extinguished when all limitations, reservations and restrictions over the land are revoked by the operation of the relevant statute that provides for compulsory acquisition of the subject land. Therefore, the native title claimants are not making a supply of surrendering their rights.
However, under the agreement the native title applicants also agreed to withdraw any objections, made under the NTA, to the compulsory acquisition. It may be argued that the native title claimants are making a supply of entering into an obligation. To meet the requirement in paragraph 9-5(a) of the GST Act, the supply must be for consideration. No part of the amount paid for compensation is consideration for a supply of withdrawing objections to the compulsory acquisition. The compensation relates to loss suffered by the native title claimants on the extinguishment of their interest in the subject land, and does not have a sufficient nexus with any supply by the native title claimants under the deed.
Consequently, the native title claimants are not making a taxable supply under section 9-5 of the GST Act as they do not make a supply for consideration.