02 Mar 2011

GST reforms and the property sector - so much change, so little time

by Andrew Sommer

Changes to the GST laws will affect the GST liability of taxes and charges that the property sector pays, and of developer contributions.

Since December 2010, a number of new proposals have been announced that will have a significant impact on taxpayers generally, but the property sector in particular, with effect from 1 July 2011.

As the changes to the GST treatment of taxes, charges, fees, non-monetary contributions such as developer contributions may require significant system changes, it is important to act now to understand the implications of the proposed changes.

Reforms to the GST exemption applying to Government taxes, fees and charges

The concepts used in the GST law are very broad. There was always the risk that compulsory government exactions that would not ordinarily be thought of as a "fee for service" would be dragged into the GST net.

The existing law deals with this challenge in a very specific way.

First, it deems the payment of any "Australian tax, fee or charge" to be consideration for a supply. This means that even where it is unlikely that a supply would be made by the entity to which the tax must be paid, the GST law deems a supply exists.

It then says that where the "Australian tax, fee or charge" is set out in a list published by the Treasurer, that "Australian tax, fee or charge" will not be treated as consideration for a supply.

For example, the current law deems the NSW Office of State Revenue to make a supply in consideration for the stamp duty paid to it. Because stamp duty is included in that list, no GST is payable by the Office in connection with the amounts it receives as stamp duty.

The difficulty is the enormous number of taxes, fees and charges – the current list is more than 680 pages long. Government departments and taxpayers alike must pore over it to try and find their particular "tax, fee or charge" in order to determine whether payment will give rise to GST liability. Similarly, Treasury is continually bombarded with requests for more taxes, fees and charges to be included in the determination.

The current proposal will eliminate the need for the long list to be published by the Treasurer. Rather, where taxes, fees and charges meet a set of criteria set out in the new Division 81, no GST should be payable.

However, there will still be a list – the proposed provision will grant a power to make regulations that will exclude certain taxes, fees and charges from exemption. It is hoped this power will be used sparingly or it is likely that the proposed amendments will simply reverse the current problems.

Non-monetary contributions

One of the difficult areas in the property industry has been the treatment of compulsory contributions in connection with the grant of development approval. Many of these contributions are covered by existing items in the determination issued by the Treasurer.

Under the proposed provisions, these contributions will be GST-exempt where they are:

  • the payment of an Australian tax or the discharging of an obligation to pay an Australian tax; or
  • the payment of a "fee or charge" that relates to the provision of a permission under an Australian law.

What has been ambiguous in the past is whether or not a non-monetary contribution – such as the dedication of land – can be properly regarded as a "tax, fee or charge". This problem has not been squarely addressed in the proposed amendments. The definition of "Australian tax" merely refers to "a tax (however described) imposed under an Australian law". It would be preferable if the proposed amendments clarified that an "Australian tax" will include contributions made in non-monetary form in order to satisfy obligations under an Australian law.

Third party arrangements

The appropriate treatment of tripartite arrangements is always a vexed issue in a GST system. The current Division 81 makes it clear that the payment of an "Australian, tax fee or charge" included in the Treasurer's determination "is not the provision of consideration". That is, the payment will not be consideration for any supply being made by any person. Thus, not only will that payment not give rise to a GST liability for the entity receiving the payment, it will not give rise to a GST liability for any other person.

The proposed amendments to Division 81 provide a more limited exemption. In contrast to the existing provisions, the proposed wording for Division 81 will only prevent the "Australian tax" or the "Australian fee or charge" being paid to an entity from being consideration for a supply that "that the entity" makes to the payer. Therefore, it is still possible that the tax, fee or charge could be consideration for a supply that another entity makes.

Given the proliferation of entities within governments, this is more than a theoretical risk.

For example, a developer makes a contribution to a local council towards the construction of a local library. Where the new Division 81 applies, that payment will not be consideration for a supply that the local council makes to the developer. It is, however, possible that the consent authority granting the developer permission to undertake the development is a quite separate entity. The new Division 81 would not prevent the contribution to the local council from being consideration for a supply being made by the consent authority to the developer.

So when will these GST changes take effect?

Even though the legislation to give effect to these amendments has not yet been introduced into Parliament, they are intended to have effect from 1 July 2011. However, as a concession, it is proposed that in the period from 1 July 2011 to 30 June 2012, a tax, fee or charge will be exempt where it either:

  • satisfies the current determination issued by the Treasurer under the current Division 81; or
  • satisfies the requirements for exemption under the new Division 81 having effect from 1 July 2011.

It will be important for all businesses and government departments to carefully consider the implications of these provisions – along with the other reforms that are to take effect in near future.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.