Following the 2010 Gloxina case I have had a lot of people tell me they have a great way to avoid developers having to charge GST on the new residential premises they build.
You have heard the same line… Well can I just say it is now 110% dead.
You would think that the Government changing the legislation in 2012 to kill the idea would make it 100% dead, but now the Commissioner has released a draft GST Ruling adding another 10% to the death.
What happened in the Gloxina case was a development lease arrangements with a government agency. This is where:
- The government agency charges a developer either a lump sum or a regular lease to access vacant land owned by the government agency;
- The developer and the government agency agree that if the developer, builds stuff on the land to an appropriate standard they will transfer the land to the developer.
The government does this as it gets the payment at item 1 above and normally requires the developer to put in roads, parks and other common goods the government agency ends up owning.
In Gloxina, the Courts concluded that the first sale of residential premises was from the government agency to the developer, and so every sale after that was input taxed. Now, to be very clear, this has not been the law for some time.
But as people still think this idea works today, the Commissioner has released GST Ruling GSTR 2014/D5 to make sure people release how dead this GST saving idea is.
In this draft ruling the Commissioner considers all the supplies that are made between the government entity and the developer… and none are a supply of new residential premises.
The supplies, and their GST treatments, are:
- Grant of a development lease by the government agency to the developer. The rent on this lease is consideration for the supply of land and is a taxable supply of vacant land.
- Development works on the government agency’s land made by the developer, in accordance with the terms of a development lease arrangement. Here the developer makes a supply of development services to the government agency. The supply of the land to the developer by the government agency is consideration for the developer’s supply of development services. Therefore, the developer makes a taxable supply of development services and the government agency makes a taxable supply of land.
- The transfer of the land by the government agency to the developer. This is just the reverse of the supply above…
The draft ruling states that the value of the development work provided by the developer will almost always be the value of the land provided by the government agency. So all these parties need to do is swap tax invoices at the agreed value.
The ruling does go into issues like attributions of the GST for both parties, where the land is not transferred but a call option is given to the developer and additional payments made by the developer to the government agency. But all of these are as you would expect using the basic GST rules.
In summary, a development lease arrangement is fundamentally a barter transaction where the developer provides developing work and the government entity provides land. The developer gets new residential premises to sell (subject to GST) and the government agency get roads, lights, parks… built for them at an agreed standard (and maybe some additional funds for accessing the site).
Can we just put this Gloxina idea in the recycling bin please…