Edited version of your written advice

Authorisation Number: 1012744889098

Ruling

Subject: GST and real property

Question 1

Were the properties unimproved land at 1 July 2000 for the purposes of Item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (Item 4)?

Answer

Yes, the following properties were unimproved land for the purposes of item 4:

• X

• …

Question 2

Are you entitled to a refund of the overpaid GST for the XXX to XXX tax periods?

Answer

Yes, you are entitled to a refund of the overpaid GST from the following properties:

Relevant facts and circumstances

You are registered for GST.

You are a local government authority.

You have sold X properties during the period from X to X. You have owned the land from which the properties were subdivided since before 1 July 2000.

The details of the properties are as follows:

Each property was sold pursuant to a separate Contract for the sale of land (Contract).

The X properties were sold under the margin scheme pursuant to clause X in the Contract.

X was sold under the margin scheme pursuant to the Contract. However, it was not applied when calculating the amount of GST payable on the sale and you paid 1/11th of the GST inclusive sales price in your Business Activity Statement (BAS)

XXX were not sold under the margin scheme at the time of settlement, but the margin scheme was subsequently adopted in accordance with extensions of time approved by the Commissioner of Taxation.

In BASs lodged for X and X (representing the period during which the X were sold) the margin was calculated as the difference between the sale price per the Contract, and the valuation at 1 July 2000 of land apportioned to each block of land sold. The GST so calculated on this margin is 1/11th of the margin.

In the relevant BAS's (between X and X) you have calculated the GST for XXX at 1/11^th of the sales price

You have submitted aerial photographs, taken in June 2000.

You contend that XXX were unimproved at 1 July 2000 and you should have applied Item 4 to calculate the amount of the margin for each property instead of Item 1.

The properties were improved land at the time of sale.

On X you were issued with a notification of entitlement to GST refund letter.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3)

Taxation Administration Act 1953 Division 3 of Part IIB

Taxation Administration Act 1953 Division 3A of Part IIB, and

Taxation Administration Act 1953 Section 105-65 of Schedule 1.

Reasons for decision

In this ruling, please note:

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all terms marked by an *asterisk are defined terms in the GST Act

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Item 4 of the table in subsection 75-10(3) (Item 4) provides that valuations may be used to work out the margin for the purpose of the margin scheme if the supplier is the Commonwealth, a State or a Territory and has held the interest, unit or lease since before 1 July 2000, and there were no improvements on the land or premises in question as at 1 July 2000.

When this is the case, the valuation is to be made the day on which the taxable supply takes place.

You are a local government and we accept you are a State as per Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory'. You have also held the properties since before 1 July 2000. All that remains to be determined is whether there were no improvements on the land as at 1 July 2000.

Improvements on the land

Goods and Services Tax Ruling GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6) discusses the meaning of the phrase 'no improvements on the land' in Item 4.

Paragraph 20 of GSTR 2006/6 states:

20. Unimproved land is taken to be land in its natural state. Thus, to establish whether there are improvements on the land for the purpose of these provisions, the land is compared with land in its natural state.

The following properties were unimproved as at 1 July 2000 as each property remained in its natural state:

• X

• …

Applying the principle in paragraph 22 of GSTR 2006/6, we consider that the following properties do have human interactions that enhance the value of the land as they have been cleared:

• X

• …

Therefore, they were not unimproved for the purposes of Item 4.

Question 2

The X properties were sold between X and X and the sales were subject to the margin scheme either at the time of sale or later with the Commissioners approval.

The GST for XXX was calculated under the margin scheme using a valuation made as at 1 July 2000 pursuant to Item 1 of the table in subsection 75-10(3) (Item 1). However, the valuation should have been made as at the day on which the supply was made pursuant to Item 4 as you are a State, have held the interest in the lands prior to 1 July 2000 and there were no improvements on the lands as at 1 July 2000.

The GST for XXX was calculated at 1/11^th of the sales price as the margin scheme was subsequently adopted in accordance with extensions of time approved by the Commissioner of Taxation. Item 4 will apply as you are a State, have held the interest in the lands prior to 1 July 2000 and there were no improvements on the lands as at 1 July 2000.

The GST for XXX was calculated at 1/11^th of the sales price as the margin scheme was subsequently adopted in accordance with extensions of time approved by the Commissioner of Taxation. In this case Item 1 will apply and not Item 4 as there were improvements on the land as at 1 July 2000.

The GST for X was miscalculated as 1/11^th of the GST inclusive sales price when the calculation should have been made using the margin scheme. In this case Item 1 will apply and not Item 4 as there were improvements on the land as at 1 July 2000.

Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953 (TAA).

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied.

Miscellaneous Tax Ruling MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (MT 2010/1) provides the view of the Commissioner on section 105-65 of Schedule 1 to the TAA.

Paragraph 25B of MT 2010/1, in part, states:

25B. The Commissioner takes the view that section 105-65 will not apply in cases where the supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. Examples of such cases include where:

• a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;

• supplies are treated as taxable under the margin scheme where there was an error in the calculation of the margin;

…

Subsection 105-65 will not apply in this case as the circumstances align with the two examples from paragraph 25B of MT 2010/1 reproduced above.

On X you were issued with a notification of entitlement to GST refund letter.

Therefore, you are entitled to a refund of the overpaid GST.

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