In a recent Decision Impact Statement, the ATO has suggested that significant GST liabilities may arise for certain types of infrastructure/PPP projects. These GST liabilities need to be carefully managed by the parties, including through the use of private GST rulings.

GST is payable on both monetary payments, as well as non-monetary consideration (ie a barter transaction).  Where there is non-monetary consideration, the market value of both sides of a transaction needs to be determined and may be subject to GST on that value.  In infrastructure/PPP projects where the government grants a concession to the project entity in return for that entity building and operating a facility, a question arises as to whether these 'in-kind' obligations of the parties constitute non-monetary consideration for GST purposes.  An example of such an arrangement is a state government granting a 30 year concession over a tollway to a consortium in return for the consortium building and operating the tollway.

Given infrastructure/PPP projects are often worth upwards of hundreds of millions of dollars, the potential GST liabilities involved can be significant.  While the GST can usually be claimed back by the parties, the parties nevertheless need to consider valuation issues, timing of GST liabilities, cash flow issues and managing GST administration.  Further, if the parties fail to properly account for GST, they can be subject to penalties and interest. 

In 2008, the ATO issued a public GST ruling on development lease arrangements.  Development leases are generally joint ventures between local councils/governments and property developers for constructing residential developments and are structured in a similar manner to many infrastructure/PPP projects.  That ruling adopted the position that development leases did not involve non-monetary consideration.  Hence, many tax advisers and taxpayers considered that similarly structured infrastructure/PPP projects should not involve any non-monetary consideration and have not paid GST in respect of the arrangement.

As a result of the Full Federal Court decision in Commissioner of Taxation v Gloxinia Investments (Trustee)[2010] FCAFC 46 (Gloxinia), concerning the GST treatment of development leases, the ATO has now withdrawn its public GST ruling on development leases.  Further, its Decision Impact Statement on the Gloxinia decision states that development lease arrangements do involve non-monetary consideration and also implies that the value of the consideration is likely to be significant. 

The Gloxinia decision and the withdrawal of the public ruling on development lease arrangements create significant uncertainty regarding the GST treatment of similar infrastructure projects and make it likely that governments and participants in infrastructure/PPP projects will want to treat such arrangements as being subject to GST or at least seek a private GST ruling on the issue.

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