Edited version of private advice

Authorisation Number: 1052400444264

Date of advice: 30 May 2025

Ruling

Subject: GST - unimproved land

Question 1

With respect to the proposed structure of the sale of Project X, is Entity A (You) on behalf of the Commonwealth making a separate supply of each Consequent Lease for the purposes of applying section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer 1

For the purposes of applying section 38-445 of the GST Act, each Consequent Lease is to be considered separately.

Question 2

Is the supply of each Consequent Lease by you on behalf of the Commonwealth GST-free pursuant to subsection 38-445(1A) of the GST Act?

Answer 2

No, the Consequent Leases do not meet the requirements in subsection 38-445(1A) and are not GST-free.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You will be releasing part of Block X section of Project X for sale as an adjacent site to a third-party purchaser (Purchaser).

Project X is currently unleased Territory land and has not previously been the subject of a supply that is GST-free under section 38-445 of the GST Act.

Project X will be sold under adevelopment lease arrangement with a Holding Lease/Consequent Lease structure. Upon the progressive completion of the Purchaser's obligations under the Holding Lease, multiple consequential long-term Crown leases with a minimum term of 99 years (Consequent Leases) will be granted to the Purchaser, with the Holding Lease being progressively surrendered for that purpose.

Project X is predominantly zoned for medium and high-density residential development. Portions of the site are also zoned for mixed use (residential and commercial development); community uses (a school site and sports oval) and urban open space.

The final estate plans, which will delimit the Consequent Leases, will be determined by the Purchaser through their Development Application.

The area of the Consequent Leases was predominantly utilised as a plantation until YYYY. The bushfires of YYYY (Bushfires) resulted in total destruction of the plantation. The Bushfires were a result of extreme weather conditions.

You do not have access to records describing the natural state of Project X before the establishment of the plantation.

Following the Bushfires, all the sites subject to a Consequent Lease (Consequent Lease Sites) were cleared of burnt trees, leaving them bare, and the land returned to a natural state.

Since YYYY, the area of the Consequent Lease Sites has been lying fallow and lightly managed by the ACT Government as a future urban area. Bushfire control activities to Project X have been minimal due to the low fuel load and have consisted of occasional slashing/mowing to maintain perimeter fence lines where they occur. No specific, recorded bushfire control activities have been undertaken on the Consequent Lease Sites.

There has been implementation of blackberry control, roads, formed tracks, excavating, grading, levelling, clearing of timber, scrub and vegetation and manmade ponds/basis on each of the Consequent Lease sites.

You anticipate the Consequent Leases will be as shown on the Existing Site Infrastructure Map.

The Consequent Lease Sites have been numbered from X to Y, noting that some sites will be returned to the Territory and will not be the subject of Consequent Leases to be granted to the Purchaser. All other sites will be subject to a Consequent Lease as per the mechanism described above.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-445

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

In this ruling, unless otherwise stated,

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

•                all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of 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

With respect to the proposed structure of the sale of Project X, is Entity A(You) on behalf of the Commonwealth making a separate supply of each Consequent Lease for the purposes of applying section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Detailed reasoning

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) provides that for the purposes of applying section 38-445 each free hold interest or long-term lease is to be considered separately. Regardless of whether it is considered that there is one single supply of multiple lots, or separate supplies, section 38-445 applies separately to each freehold or long-term lease (see paragraphs 47A to 47J).

In applying the ATO view to the facts of this case, the Commissioner is satisfied that section 38-445 applies separately to each Consequent Lease in Project X.

Question 2

Is the supply of each Consequent Lease by you on behalf of the Commonwealth GST-free pursuant to subsection 38-445(1A) of the GST Act?

Detailed reasoning

Subsection 38-445(1A) provides that a supply of land by the Commonwealth, a State or a Territory is GST-free if:

(a)           the supply is of a freehold interest in the land, or is by way of long-term lease; and

(b)           the Commonwealth, State or Territory had previously supplied the land, by way of lease, to the recipient of the supply; and

(c)            at the time of that previous supply, there were no improvements on the land; and

(d)           because conditions to which that lease was subject had been satisfied, the recipient was entitled to the supply of the freehold interest or the supply by way of long-term lease.

Project X will be sold under adevelopment lease arrangement with a Holding Lease/Consequent Lease structure. Entity A initially grants a Holding Lease. Upon the progressive completion of the Purchaser's obligations under the Holding Lease, multiple consequential long-term Crown leases with a minimum term of XX years (Consequent Leases) will be granted to the Purchaser, with the Holding Lease being progressively surrendered for that purpose. Therefore, the requirements in paragraphs 38-445(1A) (a), (b) and (d) are satisfied.

For the purposes of paragraph 38-445(1A) (c), the relevant day for ascertaining whether there are improvements on the land is 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.

The relevant day will be the day Entity A grants the Holding Lease for Project X to the recipient of the supply. For this ruling it is assumed that the current state of the land will be the state of the land on the day that the Holding Lease is granted.

GSTR 2006/6 discusses the meaning of the phrase 'improvements on the land' in the context of the phrases 'improvements on the land' or 'no improvements on the land' or equivalent phrases in Subdivision 38-N and Division 75.

To establish whether there are improvements on the land, that land is compared to land in its natural state.

GSTR 2006/6 explains that for there to be 'improvements on the land':

•                there must have been some human intervention;

•                the human intervention must have been physically located on the land; and

•                at the relevant date³ for ascertaining whether there are improvements on land, the human intervention must enhance the

-                value of the land;

-                usefulness of the land; or

-                both the value and usefulness of the land.

Paragraphs 22A to 24 of GSTR 2006/6 state:

22A. A physical human intervention on land that enhances the usefulness of the land does not necessarily have to also result in an increase in the value of that land to constitute an improvement on the land. It is sufficient that what was done has made the land more useful to an occupier.

23. Where there have been a number of human interventions on the land it is necessary to establish whether any of the human interventions enhance the value or usefulness of the land. If any of the human interventions located on the land enhance its value or usefulness at the relevant date, then there are improvements on the land. This is regardless of whether the net value of the human interventions enhances the overall value of the land.

24. Determining whether a human intervention enhances the value or usefulness of the land entails an objective test. This means that whether an intervention enhances the value or usefulness should not be determined by reference to actual, or intended, use by a specific occupier. Rather, a comparison should be made between the value or usefulness of that land in its natural state and its value or usefulness at the time provided for in the relevant provisions, to any potential occupier. ^3B

Paragraph 25 of GSTR 2006/6 provides examples of human interventions that may enhance the value or usefulness of land. Relevantly, interventions that may enhance value or usefulness include:

•                fencing - internal or boundary fencing;

•                utilities, for example, water, electricity, gas, sewerage connected or available for connection;

•                clearing of timber, scrub or other vegetation;

•                excavation, grading or levelling of land;

•                drainage of land;

•                building up of soil fertility;

•                removal of animal pests, rabbit burrows etc;

•                removal of rocks, stones or soil; and

•                filling of land.

With respect to human interventions that were once improvements but that have deteriorated over time, paragraph 28 of GSTR 2006/6 states:

28. In other circumstances, human interventions that were once improvements but that have deteriorated over time or have contributed to land degradation, may no longer enhance the value or usefulness of the land and are not improvements. For example, clearing is a human intervention which ordinarily enhances the value or usefulness of the land. However, clearing may deteriorate over time with the regrowth of the same type of vegetation or even different vegetation (for example, lantana, blackberry or other noxious weeds). Clearing also may degrade the land by later causing erosion or salinity problems.

Where there are multiple human interventions on the land, paragraph 32 of GSTR 2006/6 states:

32. Where there are a number of human interventions on the land, it is not appropriate to take a holistic approach to establishing whether there are improvements on the land. Instead, it is necessary to determine whether any of the human interventions enhance the value or usefulness of the land. If any of the human interventions enhance the value or usefulness of the land there are improvements on the land.

Application to the facts

As outlined in paragraphs 23 and 32 of GSTR 2006/6, where there are a number of human interventions on the land, it is necessary to determine whether any ofthe human interventions enhance the value or usefulness of the land. If any of the human interventions located on the land enhance its value or usefulness at the relevant date, then there are improvements on the land. This is regardless of whether the net value of the human interventions enhances the overall value of the land.

In this case, the blackberry control, roads, formed tracks, excavating, grading, levelling, clearing of timber, scrub and vegetation and manmade ponds/basis are all human interventions which continue to enhance the value and or usefulness of the land when compared to the natural state and are to be considered as improvements on the land. At least one of these interventions is on each of the Consequent Leases.

Accordingly, the Commissioner considers that subsection 38-445(1A) does not apply to any of the Consequent Leases in Project X.

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