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Edited version of your written advice

Authorisation Number: 1013047239926

Date of advice: 19 July 2016

Ruling

Subject: GST-free supply of unimproved land

Question 1

Are the supplies of the Residential Lots made by the Government to the Developer upon the issue of Certificate of Titles for these lots GST-free under subsection 38-445(1A) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supplies of the Residential Lots made by the Government to the Developer upon the issue of Certificate of Titles for these lots are GST-free under subsection 38-445(1A) of the GST Act.

Relevant facts and circumstances

A Google search of the land in question showed an aerial satellite photograph of the area revealing the land to still be mostly undeveloped bush land with a partially constructed road located on what looks to be the outskirts.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-445(1A).

Reasons for decision

A supply of land by the Commonwealth, a State or a Territory of land is GST-free under subsection 38-445(1A) if certain conditions are met. Subsection 38-445 (1A) states:

A supply by the Commonwealth, a State or a Territory of land is GST-free if:

However, the supply will not be GST-free if the land in question has already been the subject of a supply that was GST-free under section 38-445. In this case, the Government has held Title to the land since prior to 1 July 2000 and up to the grant of the Crown leases there had not been any previous sale or lease of that land.

In this case, the supplier is the Government and;

Therefore it remains to be determined whether the requirement in paragraph 38-445(1A)(c) is satisfied, that is, whether there were no improvements on the land at the time the Crown Leases were granted.

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 'improvements on land' in the context of the phrases 'improvements on the land' or 'no improvements on the land' in Subdivision 38-N and Division 75.

Paragraph 20 of GSTR 2006/6 explains that to establish whether there are improvements on the land, that land is compared with land in its natural state. At paragraph 22, GSTR 2006/6 adopts the position that for there to be 'improvements on the land', the following requirements need to be satisfied:

The table in paragraph 34 of GSTR 2006/6 specifies the relevant day for ascertaining whether there are improvements on the land. In relation to subsection 38-445(1A) the relevant day is specified as the day 'when the land was previously supplied by the Commonwealth, a State or a Territory by way of a lease to the recipient of the supply.' Accordingly, the relevant day in your circumstances is the day the Crown Leases were granted. It follows that the land supplied on that day is to be compared with that same land as it existed in its natural state.

Determining whether or not human intervention enhances the value of the land entails an objective test. Paragraph 25 of GSTR 2006/6 lists the following examples of human interventions that may enhance the value of the land:

Furthermore, at paragraphs 48 to 51 of GSTR 2006/6 the Commissioner expresses the view that, for the purposes of Item 4 in subsection 75-10(3), it is the individual lots being supplied that are subject to the 'improvements' test and not the larger area from which they are subdivided. We consider that in your circumstances, similar principles apply.

You have provided a copy of an Archaeological survey report in respect of a proposed larger subdivision that includes the three lots that are subject of your ruling application. Among other things, the executive summary of the report explains that the survey area totalled approximately a number of hectares of tropical woodland, seasonal swamps and mangrove vegetation communities.

It is further stated in this report that the land was used for resource procurement, camping and possibly as a travel corridor. The proposed area has no current land uses other than for occasional recreational activities such as dirt bike riding and four wheel driving. There is a gazetted heritage area in an adjoining subdivision. We note that the adjoining subdivision is a separate development to the current one and that we have previously issued a ruling to you in regards to this adjoining subdivision.

The photographs from the survey report as well as the other ones submitted by you show the proposed development area to be unimproved bushland. Furthermore, a Google search of the relevant area revealed the land to still be mostly undeveloped bush land with a partially constructed road located on what looks to be the outskirts of the land in question.

You have advised that there are road stubs encroaching on the land and that there is also a small cleared area on one of the Lots that is used for storage of machinery and materials and which eventually will form part of the grounds for the proposed new school. There is also a straight line clearing from the boundary of one of the Lots to an established road where a water main was buried.

While the road stubs, the clearing on the particular Lot and the water main might constitute 'improvements on the land', we note that the specific parts of the land with these improvements will not form part of the Residential Lots being supplied by the Government. As provided by a clause of the Crown leases Provisions, the Government will retain title to such parts of the land. We also note that this would also apply to the partially constructed road should this road in fact be located on the land and had already been built on the day the relevant lease was granted.

Taking into account all the factors discussed above, we consider that there were no improvements on the Residential Lots at the time the Crown leases over this development area were issued to the Developer. While a number of things listed in paragraph 25 of GSTR 2006/6 will happen before the Government transfers freehold title of the subdivided Residential lots to the Developer, it is the state of the land at the time the Crown leases were issued (being the previous supply) that is critical in determining whether there were no improvements on the land for the purpose of paragraph 38-445(1A)(c).

As discussed above, at the time the Crown Leases were issued there were no improvements on the specific parts of the land from which the Residential Lots to be supplied to the Developer will eventually, be carved out. It follows that the requirement in paragraph 38-445(1A)(c) is met. Consequently, the supplies of the Residential Lots to the Developer upon the issue of Certificate of Title for these lots will satisfy all the requirements outlined in subsection 38-445(1A) and will therefore be GST-free.


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