Australia: Local Government and GST – a simple issue?

Last Updated: 2 April 2012
Article by Scott McGill

There has been much discussion amongst local government bodies (such as municipal and shire councils) and the profession over the past 12 months regarding GST liability on the sale of their real property interests. This has culminated in a marked change in the Australian Taxation Office ('ATO') position issued publicly on 28 March 2012, in an amendment to GSTR 2006/5, confirming that a local government body " the State for purposes of Section 114 of the Constitution and may similarly be the State or Territory for the purposes of the GST Act"1.

There are two key aspects to this however they both hinge on whether local government can be considered part of the/a "State":

  • Whether local governments are considered to be "the Commonwealth, a State or a Territory" for the purposes of the margin scheme2 provisions of the GST Act which provides specific and significant concessions on property eligible sales under the margin scheme.
  • Whether Australian Constitution operates to negate the GST liability on any property sale by local government by virtue of the wording that prohibits the Commonwealth imposing "any tax on property of any kind belonging to a State"3.

Why is this important?

If councils have been paying GST on eligible property sales under the margin scheme they may be entitled to significant refunds going back up to four (4) years in respect of those sales. The concession essentially provides a valuation point for the eligible interest in calculating the GST margin on the day of sale. As the GST liability under the margin scheme is calculated as 1/11th of that margin, the lower the margin, the lower the GST. By way of simple example, where a local council were to sell vacant unimproved land now that it held at 1 July 2000 the value at the date of sale would logically equate to the sale value – meaning that there is no margin and accordingly no GST liability.

This is more complex when the relevant interest now has buildings or other improvements on it, as a valuation separating out the unimproved or "land" portion of the property will be required and GST may be payable in respect of the improvements. Invariably however the total GST liability will be lower than an ordinary sale under the

margin scheme.

Moore Stephens has been recommending to eligible councils that they undertake a review and lodge amendments as soon practicable (given a four (4) amendment limit applies).

Where the constitutional argument noted above is held to be correct then it would follow that GST liabilities would be negated and recovery of overpaid GST for up to six (6) years may be possible on the basis that it was never correctly payable in the first place. At this point Moore Stephens expresses extreme caution on this view and we would suggest energies are better placed seeking amendments under themargin schemeas noted above.

Is it really that simple?

By reviewing historic decisions in cases such as Sydney Municipal Council4 and Dandenong City Council5 it appears quite clear that local government should ordinarily be part of the State and the ATO's strong historical view to the contrary contained within the previous versions of GSTR 2006/5 is now accepted as incorrect.

Moore Stephens has advised some NSW local councils that the position in regards to Division 75 is quite clear and have recommended that amendments be sought from the tax office in respect of eligible sale of property under the margin scheme where the GST has been overstated.

Although technically clear in respect of Councils being part of the State for the margin scheme provisions actual application of the provisions can be quite problematic and requires some level of care in particular eligibility of the real property depends on it having "no improvements as at 1 July 2000"6. Further, where the eligible property has had improvements put on it prior to sale the unimproved component (or land) will need to be separately valued.

The Constitutional argument – does it work?

The Constitutional argument noted in the second point above is being touted by some as being quite clear and that it follows from analysis of Section 114 of the Constitution and Section 5(1) of the GST Imposition Act that a "State" has no liability to pay GST on sales of real property. Further to this it is indicated that where the local government is properly considered a "State" it would follow that this treatment would extend to such bodies.

We note with some caution however that there is no clear precedent on this issue and further the distinction between tax "on property of any kind belonging to a State" may validly be distinguished from tax in respect of disposal of property by the State. It also may be argued that the GST burden on the supply is in fact borne by the purchaser, who on a fully taxable supply may have the right to claim back that credit, or if not, is in fact bearing the cost of being the end user putting that property into consumption. This is more complex perhaps on margin scheme supplies, where the ATO now largely accepts that the tax inclusive retail selling price may not be affected by the amount of GST borne by the vendor, however one may distinguish this on the basis of specific concessions within the margin scheme provisions and in particular the additional concession available to "a State".

This issue is further complicated by the existing conventions between State and the Commonwealth in the inter-governmental agreements (IGA) and related legislation where a State government would typically pay GST in these circumstances – subject only to the margin scheme concession as noted. One view may be that if local governments felt they were not bound by agreement between the States and Commonwealth then they may not be under sufficient control to be considered part of "the State".

Our Recommendation

Moore Stephens recommends that all Local Councils should obtain specific advice in regard to their circumstances. Where it is clear that the particular body qualifies as being part of "the State", immediate attention should be given to identifying and confirming eligible property sales under the margin scheme where GST may have been overpaid and seeking amendments as soon as practicable, noting the four year time limit.

If you would like assistance on this issue, please do not hesitate to contact us as below to discuss your needs.


1 GSTR 2006/5 - as amended 28 March 2012 - paragraph 15F
2 Division 75 – A new Tax System (Goods & Services Tax) Act 1999 ('GST Act')
3 Section 114 – Commonwealth of Australia Constitution Act ('Constitution')
4 Sydney Municipal Council v the Commonwealth (1904) 1 CLR 208
5 Dandenong City Council v Australian Municipal, Administrative Clerical and Services Union (2001) FCA 349
6 Item 4 – table to Section 75-10 – GST Act

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions