SXGX and Commissioner of Taxation
[2011] AATA 110
•18 February 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 110
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2010/ 3506
TAXATION APPEALS DIVISION ) Re SXGX Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Deputy President P E Hack SC Date18 February 2011
PlaceBrisbane
Decision The decision under review is affirmed. ..................[Sgd]........................
Deputy President
CATCHWORDS
TAXATION – Income Tax – GST – Sale of land expected to be compulsorily acquired under statute – Whether GST payable - Classification of sale as supply rather than resumption – Decision under review affirmed.
A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 7-1, 9-5, 9-10, 9-15, 9-20
Acquisition of Land Act 1967 (Qld) ss 12, Schedule
Goods and Services Tax Ruling 2006/9
ETO Pty Ltd v Idameneo (No 123) Pty Ltd [2004] NSWCA 368; (2004) 215 ALR 152
Hornsby Shire Council & FCT [2008] AATA 1060; (2008) 71 ATR 442; 2008 ATC 10-061
Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191; (2006) 156 FCR 256
Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115; (2006) 152 FCR 461
REASONS FOR DECISION
18 February 2011 Deputy President P E Hack SC Introduction
The Queensland Government is intending to construct the Eastern Busway between Capalaba and Coorparoo over the next few years. To do so, it will need to acquire areas of land along the route proposed for the busway. Until the events in question in these proceedings the applicant was the registered proprietor of vacant land at Old Cleveland Road, Capalaba. That land was identified as being in the path of the proposed busway. In August 2008 the applicant sold the land to the State of Queensland for $2,773,500.00.
The applicant did not include the proceeds of the sale of the land in its business activity statement for the month of August 2008. The respondent, the Commissioner of Taxation, took the view that the sale was a taxable supply and that GST was payable on the sale by the applicant. That view came to be reflected in a notice of assessment of GST net amount issued on 20 August 2009 which increased GST payable by the applicant by $252,136.00.
The applicant objected to the assessment (and to an assessment of penalties). On 24 June 2010 the Commissioner disallowed the objection to the GST net amount assessment but allowed that against penalties. The applicant seeks a review of the Commissioner’s decision to disallow its objection.
The legislation
By virtue of s 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) GST is payable on taxable supplies. Section 9-5 of the GST Act is in these terms:
“You make a taxable supply if:
(a) you make the supply for *consideration; and
(b)the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.”
There being no doubt that the matters in paragraph (c) and (d) are satisfied it is necessary only to consider the notions of “supply”, “consideration” and “enterprise”.
Section 9-10 of the GST Act defines supply as “any form of supply whatsoever”. It goes on to set out, non-exhaustively, examples of what does amount to a supply.
By virtue of s 9-15(1) of the GST Act “consideration” includes:
“(a)any payment, or any act or forbearance, in connection with a supply of anything; and
(b)any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.”
Finally, “enterprise” is defined in s 9-20 of the Act in these terms:
“(1) An enterprise is an activity, or series of activities, done:
(a) in the form of a *business; or
(b) in the form of an adventure or concern in the nature of trade; or
(c)on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or
(d)by the trustee of a fund that is covered by, or by an authority or institution that is covered by, Subdivision 30‑B of the Income Tax Assessment Act 1997 and to which deductible gifts can be made; or
(da)by a trustee of a *complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund; or
(e) by a charitable institution or by a trustee of a charitable fund; or
(f) by a religious institution; or
(g)by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory; or
(h)by a trustee of a fund covered by item 2 of the table in section 30‑15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN.
(2) However, enterprise does not include an activity, or series of activities, done:
(a)by a person as an employee or in connection with earning *withholding payments covered by subsection (4) (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection (1)); or
Note: Acts done as mentioned in paragraph (a) will still form part of the activities of the enterprise to which the person provides work or services.
(b) as a private recreational pursuit or hobby; or
(c)by an individual (other than a trustee of a charitable fund, or of a fund covered by item 2 of the table in section 30‑15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a *partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain; or
(d)as a member of a local governing body established by or under a *State law or *Territory law (except a local governing body to which paragraph 12‑45(1)(e) in Schedule 1 to the Taxation Administration Act 1953 applies).”
The applicant’s case
In its simplest form, the case for the applicant is that it did not make a supply when the land was conveyed to the State of Queensland; rather, it says, Queensland acquired the land. At the time of the contract the resumption process had commenced and the present case, so it is said, falls within the category of cases where land is taken by a government or government authority with statutory power to acquire land by compulsion. Such acquisitions are not liable to GST.
There is support for that proposition in the Commissioner’s published rulings[1] and in an earlier decision of the Tribunal[2], however in my view it is unnecessary to consider the correctness of the proposition. That is so because the present case is one where there was not a compulsory acquisition, there was instead a supply. To explain why that is so it is necessary to set out the facts in some greater detail.
[1] Goods and Services Tax Ruling 2006/9 at paragraph [82].
[2] Hornsby Shire Council & FCT [2008] AATA 1060; (2008) 71 ATR 442; 2008 ATC 10-061.
Factual background
I ought first make reference to the evidence. The applicant did not provide any witness statements nor call any witnesses. Indeed the controlling mind of the applicant was said not to be available to give evidence at the hearing. I refused an application by the applicant for an adjournment. As it happens there is very little dispute about the facts and, to the extent to which the facts are in dispute, they seem to me not to matter. The background to the matter is set out in the Commissioner’s Statement of Facts, Issues and Contentions. The applicant prepared and lodged a response setting out the limited extent to which it put in issue the facts relied on by the Commissioner.
What emerges from those documents is that the applicant became registered for GST in March 2002. It acquired the Capalaba land in early 2002, for the purpose of establishing another outlet for a motor vehicle dealership carried on by the natural person associated with the applicant. The purchase price included GST and the applicant claimed an input tax credit on the purchase price. The original intention was not put into effect because of a decline in the second hand vehicle industry. The possibility of constructing commercial property, available for lease, on the land was considered.
In November 2005 the State Government announced plans to construct the Eastern Busway. Thereafter the applicant, and presumably all other property owners likely to be affected, received regular correspondence keeping it and them informed of developments. In November 2006, at a time when draft plans for the busway were being considered, the applicant was notified that its land would be required if the project proceeded in its then current form.
Eventually, in late 2007, the applicant placed the land on the market for sale. In January 2008 it executed a contract to sell the land however that contract was terminated by the proposed purchaser when it learned of the likelihood of resumption by the State Government.
In early 2008 the Queensland Government approved the busway plan. The applicant was informed that its property was required for the project. The letter was undated but it was likely to have been sent sometime after late February 2008. Having identified that the applicant’s land was required for the project the letter continued:
“Property owners will be compensated at fair market value for their property. Please note this is not the start of formal resumptions (see below for more details on resumption timing).
Resumption timing – Cavendish Road to Capalaba
A decision has not yet been made to resume properties between Cavendish Road, Coorparoo and Capalaba. While the timing of resumptions east of Cavendish Road is yet to be determined, areas of higher priority include the section from Cavendish Road to Bennetts Road and the section in and out of the Carindale shopping centre. In other areas, such as Camp Hill, Carina and east of Carindale, the Eastern Busway is a longer-term need. Future resumptions will only commence after a decision is made to begin construction of the busway in these areas and impacted property owners will be informed well in advance.
Resumption timing – Buranda to Cavendish Road
The Queensland Government has given approval for formal property resumptions between Buranda and Cavendish Road, Coorparoo. The resumption process for properties between Buranda and Main Avenue, Coorparoo is due to begin in July 2008, when the Queensland Government is expected to issue these owners with a formal Notice of Intention to Resume. The resumption process for properties with surface land requirements between Main Avenue and Cavendish Road will begin later in 2008 (exact date to be determined).
I note that you are now in hardship negotiations with Main Roads Property Services and trust that a mutual agreement will soon be reached to the satisfaction of both parties.”
The last paragraph of the letter suggests that the letter was sent sometime after 26 February 2008 because on that day solicitors acting for the applicant wrote to the representative of the Queensland Government seeking to have the land acquired “sooner than it would otherwise”. Reference was made by the solicitors to a “hardship policy” which had been adopted by the government. The effect of the policy was that the owner of a property, which had been identified as being within an area required for future public infrastructure, who could demonstrate he or she would suffer hardship if there was a delay in acquisition, might request that the relevant government agency purchase the property forthwith. Reference was made to the abortive sale of the property in support of the argument that the land had been “effectively sterilised”. The letter concluded:
“My client requests that DMR acquire the Land as soon as it is possibly able to do so. I am instructed that no current tenancies will be affected by the taking.
Could you please advise if DMR is agreeable to acquiring my client’s land in an expeditious manner on the grounds on [sic] hardship.”
Agreement was able to be reached and the parties executed a contract in the standard form adopted by the Real Estate Institute of Queensland and approved by the Queensland Law Society for the conveyance of commercial land and buildings. The contract specified a purchase price of $2,773,500.00 and a completion date of 18 August 2008.The contract presented the parties with various options regarding the treatment of GST. In particular, the parties could nominate whether the sale was a supply of a going concern, whether the margin scheme was to apply and whether the purchase price was to include GST. The box “Yes” was chosen in answer to that last question and the initials of the signatories to the contract have been added immediately adjacent to that part of the contract. Clause 5.1 of the Special Conditions annexed to the contract is material. It provided:
“The parties agree that the Purchaser is acquiring the Property on a ‘hardship’ basis and that the Purchase Price is in full and final settlement of all claims that the Vendor may have against the Purchaser and the Purchaser acknowledges that the Purchase Price includes an amount to compensate for some of the costs and expenses incurred by the Vendor in respect to this purchase on a similar basis to the way such costs and expenses are recompensed in a formal resumption under the Acquisition of Land Act 1967.”
Completion occurred on 18 August 2008.
The applicant lodged its August 2008 BAS in December 2008. The receipt from the sale of the land was not accounted for in that BAS.
The process of compulsory acquisition of land
Reference should also be made to the process, prescribed by the Acquisition of Land Act 1967 (Qld), for the acquisition of land for public works and other public purposes. That Act permits the taking of land by a “constructing authority”, which includes the State, for any of the purposes set out in the Schedule to the Act. Where a constructing authority proposes to take any land it is obliged to serve a “notice of intention to resume” on every person entitled to claim compensation under the Act for the taking of the land and on any mortgagee of the land. Upon receipt of that notice the recipient may serve on the constructing authority an objection in writing to the taking of the land. Matters pertaining to the amount or payment of compensation are not grounds of objection. The constructing authority must consider the grounds of objection and may discontinue the resumption or amend the notice of intention to resume. If, after considering all objections, the constructing authority is of the opinion that the land in question is required for the purpose for which it is proposed to be taken, it may apply to the Minister that the land be taken.
After consideration by the Minister the Governor in Council may, by gazette notice, declare that the land particularised in the notice is taken for the purpose mentioned in the notice. The taking is effective on the day of publication of the notice. The effect of the gazette resumption notice is set out in s 12 of the Acquisition of LandAct. It will suffice to say that the land vests in the Crown or the constructing authority on and from the date of publication in the gazette of the notice, freed of all interests whatsoever, and the estate or interest of every person entitled to the land is converted into a right to claim compensation under the Act.
Consideration
The argument for the applicant focuses upon this passage in GSTR 2006/9:
“82 … In cases where land vests in the authority as a result of the authority seeking to acquire the land, and initiating the compulsory acquisition process pursuant to its statutory right, then the owner does not make a supply because it takes no action to cause its legal interest to be transferred or surrendered to the authority.”
It was argued by the applicant that the compulsory process had been initiated and thus the land had vested in the State of Queensland as a result of that Government seeking to acquire the land.
There are many reasons to reject the argument however I observe first that the reference in the ruling to “initiating the compulsory acquisition process” is somewhat misleading. I would have thought that, at least in Queensland, the compulsory process is initiated upon service of the notice of intention to resume. There may well be situations where, after the service of the notice of intention, the parties agree on a sale rather than the continuation of the statutory process. For complete accuracy it might be preferable to refer to the fact of acquisition of the land as the result of the compulsory process rather than initiating the compulsory process. But that aside I reject the argument for the applicant. It is not right to say that the Government was seeking to acquire the land. At the time of the undated letter in early 2008 the expectation was that the applicant’s land would be required, however the applicant’s land was in that section of which the letter said:
“A decision has not yet been made to resume properties between Cavendish Road, Coorparoo and Capalaba.”
It seems to me not to matter whether, as the applicant contended, the resumption processes had commenced; certainly there was no use by the Queensland Government of its powers under the Acquisition of Land Act. But whether it had commenced or not the issue, at least in the language of the Ruling, is whether the land had vested in the Authority. As a consequence of the agreement to sell the State of Queensland became the registered proprietor of the land. The Ruling, as the context makes clear, uses the term “vests” in the way it is used in statutes dealing with compulsory acquisition by emanations of the Crown.
Moreover this was not a case where there was no supply because the applicant took “no action to cause its legal interest to be transferred or surrendered to the authority”. It, at least, negotiated and agreed upon a price to be paid, it executed an agreement to sell and it gave effect to that agreement by executing and delivering a memorandum of transfer of the land. The contrast with the owner of resumed land is stark.
Ultimately however the case falls to be determined by reference to the statute, not the Commissioner’s Ruling. It is not open to doubt that the conveyance of real property constitutes a supply. The concept of supply in the GST Act “is very wide”[3]. That a conveyance of land constitutes a supply has been accepted by the New South Wales Court of Appeal[4]. And in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd[5] the Full Federal Court said:
“The concept of ‘supply’ in its ordinary meaning in s 9-10(1) of the GST Act does seem to require some act of provision, furnishment, conferral or giving of some thing. The inclusions in s 9-10(2) specifically identify some of these things, without limitation to subs (1), as goods, services, advice or information, real property and any right, (paras (a) to (e) inclusive). …”.[6]
[3] Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191; (2006) 156 FCR 256 at [35]
[4] See e.g. ETO Pty Ltd v Idameneo (No 123) Pty Ltd [2004] NSWCA 368; (2004) 215 ALR 152 at [7]
[5] [2006] FCAFC 115; (2006) 152 FCR 461
[6] Ibid at [16]
Whatever might have happened had the applicant done nothing and waited for the resumption process to take its course, the fact remains that it executed a contract of sale whereby it agreed to convey the land to the State of Queensland. At that time the statutory process of resumption was in prospect but it had not come to fruition. In my view the sale by the applicant to the State constituted a supply and it was a supply for consideration.
The remaining issue is whether the supply was in the course of or furtherance of an enterprise that the applicant was carrying on. I consider that it was.
The applicant was in the business of buying and selling used cars. That was the enterprise in which it was engaged. At a time when it was considering expansion, and in the course of its enterprise, it acquired the land for future development as a used car yard. The economic position changed and so did its plans for the land. It determined to use the land for its financial benefit, initially by proposing to find a tenant for whom a building could be constructed and then by attempts to sell the land. It sold the land to the Queensland Government. The sale was plainly in the course of conducting its enterprise. It is unnecessary to conclude whether, as the Commissioner submits, that the applicant was a property developer. It is enough to conclude that it sold the land in the course of its enterprise as a used car dealer.
Conclusion
The Commissioner’s objection decision was correct. It will be affirmed.
I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC
Signed: ...........................[Sgd]...............................................
Alex Seagar, AssociateDate of Hearing 11 February 2011
Date of Decision 18 February 2011
For the Applicant Kallinicos Bray, Accountants
Counsel for the respondent Mr VG Brennan
Solicitor for the Respondent ATO Legal Services Branch
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