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Ruling

Subject: GST and the supply of government land

Question

Will your acquisition of the land be a creditable acquisition?

Answer

No, in the circumstances detailed by you, your acquisition of the land will not be a creditable acquisition.

Relevant facts and circumstances

You were established as a corporation sole from 1 July YYYY by legislation. Your activities include the development and promotion of project land.

You have been registered for GST since 1 July YYYY.

Prior to 1 July YYYY your functions were carried out by Department A from 1 July YYYY and later by Department B until you became a Government Business Division. Departments A and B are both government agencies of the specified government.

Land vested in Department B since prior to 1 July 2000 has been identified for residential development. There were no improvements on the land as at 1 July 2000. It is proposed to transfer freehold title of this land to you to undertake the development. Department B is an agency nominated by the Government's Administrative Arrangements Order and is the government for the purposes of making this supply.

The transfer of the land will be for consideration which may be a lump sum, a percentage of your sales, or a combination of both.

Department B proposes to apply the margin scheme if the purchase is not GST-free under subdivision 38-N. If this is the case, the valuation to be used will be the valuation as at the day on which the taxable supply takes place - in accordance with Item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999.(GST Act).

The relevant legislation requires an approving authority to take into account a number of matters in considering a development application and allows an approving authority to impose on a development the conditions it thinks fit and specifies in the development permit.

A condition of the development permit issued to Department B (after 1 July 2000) was the requirement to enter into agreements with the relevant authorities for the provision of water supply, sewerage facilities, electricity supply and telecommunications to each lot shown on the endorsed plan in accordance with the authorities' requirements and relevant legislation at the time.

The establishment of power and water infrastructure has been undertaken by the respective utility providers since the issue of the development permit. This has been at the expense of Department B but the infrastructure (i.e. power substation and water main) remains the property of the utility providers. It is this infrastructure that will facilitate the provision of power and water to each lot on the plan.

You provided photographs and location plans that show the power and water connections on the land. The connections are shown to be located on the land. The land is primarily virgin bush, and the photographs show that a small portion has been cleared around the power substation and water main.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 Division 75

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

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act explains that you have made a creditable acquisition for GST purposes if:

· you acquire anything solely or partly for a creditable purpose

· the supply of the thing to you is a taxable supply

· you provide, or are liable to provide, consideration for the supply, and

· you are registered, or required to be registered, for GST.

Section 11-15 of the GST Act explains that you have acquired a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However you do not acquire it for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

On the facts provided, you are acquiring the land in the course of carrying on your enterprise, you will provide consideration and you are registered for GST. Therefore, if the supply of the land to you is a taxable supply, you will be making a creditable acquisition, except to the extent (if any) that the acquisition relates to making supplies that will be input taxed.

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· it makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia and

· the entity is registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

On the facts that you have provided, the supply by Department B will generally satisfy the requirements of a taxable supply, unless the supply is GST-free or input taxed.

Divisions 38 and 40 of the GST Act provide for certain supplies to be GST-free and input taxed respectively.

In the circumstances outlined, there is no provision in Division 40 of the GST Act under which the supply of the land to you will be input taxed.

Dependant on the circumstances of Department B and the transaction in relation to the supply, certain Subdivisions in Division 38 of the GST Act may apply. You have specifically requested the ruling in relation to Subdivision 38-N. Accordingly, we will consider the application of section 38-445 of the GST Act.

Under subsection 38-445(1) of the GST Act, a supply of a freehold interest in land is GST-free if it satisfies the following conditions:

(1) it is a supply by the Commonwealth, a State or a Territory;

(2) it is a supply of land on which there are no improvements; and

(3) the land has not previously been supplied as a GST-free supply under section 38-445.

Goods and Services Tax Ruling GSTR 2006/5 meaning of 'Commonwealth', a State or a Territory' confirms that Department B is the Government for the purposes of making this supply. Department B has held the land continuously since prior to 1 July 2000, so there has not been any previous supply of the land that is a GST-free supply.

Conditions (1) and (3) above are satisfied.

Goods and Services Tax Ruling GSTR 2006/6 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 the land' in the context of the phrases 'improvements on the land' or 'no improvements on the land' in Subdivision 38-N of the GST Act and explains the Commissioners view of the law as it applied from 1 July 2000.

Paragraph 20 of GSTR 2006/6 states that unimproved land is land in its natural state. Therefore, to determine whether there are improvements on the land, the land must be compared with the land in its natural state.

Paragraph 22 of GSTR 2006/6 provides 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

· That human intervention must enhance the value of the land at the relevant date for ascertaining whether there are improvements on the land.

· Paragraph 25 of GSTR 2006/6 gives examples of human interventions that may enhance the value of the land. These include, amongst other things, utilities, for example, water, electricity, gas, sewerage connected or available for connection.

Although the land is primarily virgin bush, there is a connection of power (power substation) and a connection of water (water main) on the land. The location plans you have provided show that the power and water connections are on the land itself, that is, within the boundary of the land. Although these connections are the property of the utility providers and will be used to provide power and water to individual lots created by the development, they are nonetheless improvements on the land.

Accordingly, condition 2 of subsection 38-445(1) of the GST Act is not satisfied and the supply of the relevant land will not be GST-free.

You have stated that, if Department B's supply of the land to you is not GST-free under Subdivision 38-N of the GST Act, the margin scheme will be applied and the valuation to be used will be the valuation as at the day on which the taxable supply takes place - in accordance with Item 4 of the table in subsection 75-10(3) of the GST Act.

You advised that Department B has held the land continuously since prior to 1 July 2000 and there were no improvements on the land as at 1 July 2000. Further, the water and power infrastructure were installed after the issue of the development permit (after 1 July 2000).

Under subsection 75-10(3) of the GST Act, where, as is the case here, the supplier of land is a Territory that has held the interest, unit or lease since before 1 July 2000, and there were no improvements on the land as at 1 July 2000, the valuation to be used will be the valuation as at the day on which the taxable supply takes place - in accordance with Item 4 of the table in subsection 75-10(3) of the GST Act.

As the land is not land on which there are no improvements, the supply of the land by Department B will not be GST-free as determined earlier in this ruling. Therefore, if the supply of the land to you is a taxable supply under the margin scheme, section 75-20 of the GST Act will have effect, despite section 11-5 of the GST Act. This means that despite section 11-5 of the GST Act, your acquisition of the land will not be a creditable acquisition.