Yesterday the Commissioner published GSTR 2015/2 ‘Goods and services tax: development lease arrangements with government agencies’.
The ruling outlines the Commissioner’s views on the GST treatment of development lease arrangements between government entities and private developers that typically have the following features:
- the private developer undertakes a development on land owned by a government agency in accordance with the terms of a written agreement between the developer and the government agency; and
- the government agency supplies the land by way of freehold or grant of a long term lease to the developer, subject to the developer undertaking the development in accordance with the terms of the written agreement – that is, the developer becomes entitled to a transfer of the freehold or grant of a long term lease when the development is completed.
The ruling is comprehensive and considers the following matters:
- the relevant principles for identifying and characterising the various supplies that are made for consideration under a development lease arrangement, including:
- whether the grant of a short-term lease or licence (development lease) by the government agency to allow the developer to undertake the development on land is a supply for consideration;
- whether, in completing the words on land owned by the government agency, the developer makes a supply of development services to the government agency for consideration;
- whether the sale of the freehold or grant of the long-term lease of land by the government agency is a supply for consideration, and whether any consideration the developer provides for supply of the land includes undertaking of the development words on land owned by the government agency;
- the extent to which the consideration for particular supplies made under a development lease arrangement includes consideration that is not expressed as an amount of money, that is, non-monetary consideration;
- how the value of any non-monetary consideration provided for supplies made in the context of a development lease arrangement may be determined; and
- the attribution, under Division 29, of the GST liabilities and input tax credit entitlements that may arise under development arrangements.
The summary of the GST outcome under the Ruling are as follows:
- the supplies made under a development lease agreement are as follows:
- the government agency makes a supply of land to the developer by way of lease or licence; and
- the developer makes a supply of development services to the government agency.
- the supplies made for consideration are as follows:
- where the terms of the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works, the supply of the land by the government agency is consideration for the developer’s supply of development services and the supply of the development services is, in turn, consideration for the supply of land by the government agency.
- where the developer completes additional works on land retained by the government agency, the developer makes a supply of development services to the government agency. The supply of the land by the government agency is consideration for this supply of development services if the terms of the development lease agreement make the government agency’s supply of land subject to or conditional upon the developer completing the additional works, and Division 82 does not apply.