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Edited version of your written advice
Authorisation Number: 1013028569325
Date of advice: 6 June 2016
Ruling
Subject: GST and use of margin scheme under item 4 of section 75-10(3) of the GST Act
Question
Are you entitled to use item 4 of subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the purposes of calculating the amount of GST on taxable supplies under the GST margin scheme?
Answer
Yes. You are entitled to use item 4 of subsection 75-10(3) of the GST Act for the purposes of calculating the amount of GST on taxable supplies under the GST margin scheme.
This ruling applies for the following periods:
Not applicable
The scheme commences on:
Not applicable
Relevant facts and circumstances
• You (Applicant) are a public education institution incorporated under a relevant Act.
• The Applicant is a registered charity with Australian Charities and Not-for-profits Commission (ACNC) and is endorsed with an income tax exemption and GST concession.
• All of the Applicant's affairs are conducted by a group of elected and appointed members that form part of a council whose duties include performing the functions of the Applicant in accordance with the relevant Act.
• The Administrator of the Territory, Ministers for Education, Business and Treasurer of the Territory, as well as the Auditor-General also have various functions and involvement in the management, control, and the financial affairs of the Applicant.
• The Applicant was provided land in the Territory by the relevant Territory Government in 19XX for no consideration.
• The Applicant subdivided this land in 20XX into separate lots, with one of the partition lots being used for the Applicant's campus.
• The remaining lots have been used to undertake the land development activities considering of a further subdivision into approximately YYY residential lots, of which ZZZ were sold in 20YY and the remaining lots are currently on the market.
• The land used for the development represents unimproved land as at 1 July 2000.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 - Division 75, subsection 75-10(3) and subsection 75-10(3A)
A New Tax System (Goods and Services Tax) Act 1999 - section 195-1
Reasons for decision
Division 75 of the GST Act allows you to use the margin scheme to bring within the GST system your taxable supplies of freehold interests in land. If a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.
If subsection 75-10(3) of the GST Act applies to your supply, the margin for the supply is the amount by which the consideration for the supply exceeds a particular valuation of the interest.
Item 4 of subsection 75-10(3) of the GST Act applies where the supplier is the Commonwealth, a State or a Territory, and the interest has been held since before 1 July 2000, and there were no improvements on the land or premises in question as at 1 July 2000. The relevant valuation under item 4, in determining the margin, is the valuation of the land on the day on which the taxable supply takes place.
Subsection 75-10(3A) of the GST Act provides that if there are improvements on the land in question on the day of supply, the valuation is to be made as if there are no improvements on the land or premises on that day.
Goods and Services Tax Ruling GSTR 2006/6 provides clarification on the meaning of the phrase 'improvements on the land or premises in question', and the application of Division 75 of the GST Act to the facts of this ruling.
Paragraphs 48 to 51 of GSTR 2006/6 contain the following:
Subdivided land and item 4 of the table in subsection 75-10(3)
48. In this part of the Ruling, the Commissioner considers whether a supply of a particular subdivided lot is ineligible for consideration under item 4 of subsection 75-10(3) because the larger area (X land) from which it was subdivided had improvements on it at 1 July 2000, even though the physical area of the particular subdivided lot had no improvements.
49. The issue is whether it is necessary to consider whether any part of the X land had improvements on it or whether regard should be had only to that part of the X land that forms the subdivided lot.
50. It is the Commissioner's view that the words 'land or premises in question' in item 4 qualify the application of the improvements test to land that is supplied and not the larger area from which it is subdivided.
51. These words can be contrasted with the expression 'interest, unit or lease' which are used elsewhere in the item to refer to the legal interest being supplied under the margin scheme. This distinction supports the view that it is the physical land rather than the legal interest that is considered when determining whether there were improvements on the land at the relevant date
The test of whether there were improvements on the Land as at 1 July 2000 is provided in paragraph 21 of GSTR 2006/6 as 'any operation of man on land which has the effect of enhancing its value comes within the definition of improvement'.
Generally, easements, restrictive covenants and encroachments would not be considered improvements where they do not have the effect of enhancing the value of the land.
The Applicant acquired the property in 19XX for no consideration from the Territory Government and subdivided the land in 20XX. One of the partition lots were used for the campus and other lots were subdivided into approximately YYY residential lots for sale.
We consider that there were no improvements on the land as at 1 July 2000 as per the facts provided by the Applicant.
GSTR 2006/5 discusses the meaning of 'Commonwealth, a State or a Territory" for the purposes of a number of GST provisions including section 75-10 of the GST Act.
The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1 of the GST Act. And section 195-1 of the GST Act adopts the meaning of 'government entity' given by section 41 of the A New Tax System (Australian Business Number) Act 1999.
Paragraph 11 of GSTR 2006/5 provides that if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State.
Based on the detailed explanation provided by you, it is our view that the Applicant is discharging governmental functions for the Territory as a corporation. The Applicant also falls within the meaning of 'Commonwealth, a State or a Territory' for the purposes of GST as expressed in GSTR 2006/5.
Therefore, the Applicant is entitled to use item 4 of subsection 75-10(3) of the GST Act for the purposes of calculating the amount of GST on taxable supplies under the GST margin scheme.
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