GST Q&A – GST on costs associated with land acquisitions

Question

Under the Land Acquisition and Compensation Act 1986 (Vic), authorities acquiring land from land owners for a capital works property are required to pay for any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition. However, the authorities are not required to pay for the GST component.

Council has made payments both directly to valuers and lawyers, and indirectly through Council’s solicitor.

A few of the payments made directly to valuers and lawyers have included the GST component. This is because the GST component was shown on the invoices.

In relation to the payments though Council’s solicitor, these have generally been limited to the expenses only with no GST component. However, Council has been advised by its solicitor that it should expect landowners to seek compensation for the GST component at a later stage on the basis that it is unreasonable for the landowner to wear the GST component of costs associated with the land acquisition process.

Where Council makes payments inclusive of GST, can Council claim the GST component even though the service has been provided to someone else (claimant) and not directly to Council?

Answer

In the above situation, Council will only be entitled to claim a GST credit if it holds a tax invoice and the payments are for a ‘creditable acquisition’.

Generally, Council will be considered to make a creditable acquisition under section 11-5 of the GST Act if:

1.    Council acquires anything solely or partly for a creditable purpose; and
2.    the supply of the thing to Council is a taxable supply; and
3.    Council provides, or is liable to provide, consideration for the supply; and
4.    Council is registered or required to be registered.

On the basis that the payments being made by Council are in relation to services being provided to someone else, the payments will not be in relation to a supply being made to Council. Accordingly, the components of both paragraphs (a) and (b) above will not be met, and Council will not be able to claim the GST component.

By way of example, assume a lawyer provides legal services to another person (e.g. an individual) for $1,100 (including GST). Even though Council may pay the entire invoice (i.e. $1,100), unless Council is acquiring the legal services (paragraph (a)) in its own right, and the supply by the lawyer is a taxable supply and being made to Council (paragraph (b)), it will not be making a creditable acquisition and cannot claim any GST component of the payment.

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.