Edited version of your private ruling

Authorisation Number: 1012446948381

Ruling

Subject: GST and supply of real property

Question 1

Are you the State for the purposes of relevant sections of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Does section 38-445 of the GST Act apply to treat your supply of land as GST-free?

Answer

Yes.

Relevant facts and circumstances

· You are a local government entity and are registered for GST.

· You are established under, and governed by relevant local government legislation.

· You have made a supply of real property. You have advised that there were no improvements at all on the land as at the time of the supply, and it was completely unimproved.

· You therefore consider that the supply of real property constituted land with no improvements for the purposes of the GST Act.

· In particular, you have advised that none of the following activities, attributes or improvements were on the land at the time of the supply:

o Houses or other buildings

o Commercial or industrial buildings

o Outbuildings, stock walls, internal fences, formed internal roads, internal fencing etc

o Fencing - internal or boundary

o Utilities connection

o Clearing of vegetation

o Excavation of land

o Drainage

o Removal of physical encumbrance

o Filling of land.

· You have provided a copy of your Settlement Statement and Sale Contract for the supply of the land. You have also provided a Schedule of Property Sold.

· Your contract states that you have supplied the whole of the land in the relevant Certificate of Title, and specifies that the land is unimproved land.

· Your Sale Contract states that the vendor (you) are not liable for GST on the property (by virtue of ticking a box).

· The contract also states (again by ticking a box), that GST is not to be added to the purchase price and the margin scheme is not to be used.

· Your settlement statement from the conveyancer does not specify whether the sale price on your supply of the land is subject to GST. It does not have an amount itemised (as a disbursement or government charge) payable to the ATO for GST.

· However, your settlement statement has hand written notes that the amount due to you at settlement includes GST, and a calculation of a GST amount. The notes also include an 'asset number' and 'transaction reference' number.

· These hand written notes appear to be the basis for calculations/entries in the Schedule of Property Sold (the Schedule).

· This Schedule indicates that the property was unimproved land that was on hand on 1 July 2000. The Schedule lists the sale price, and a GST amount included in the sale price.

· We have assumed this Schedule is for your records and is not given to the purchaser.

· You have advised that you treated the supply as fully taxable for GST purposes. You have advised that GST was remitted on the full 1/11^th of the sale proceeds received in your Business Activity Statement for the tax period in which the supply occurred.

· You now consider that you may be entitled to characterise the supply of real property as a GST-free supply of land in accordance with Subdivision 38-N of the GST Act.

· You have advised that you only require a private ruling on your substantive entitlement to a refund, and do not require a ruling on the application of section 105-65 of Schedule 1 to the Taxation Administration Act 1953.

Relevant legislative provisions

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

Division 9

Section 38-445

Taxation Administration Act 1953

Section 105-55 of Schedule 1

Section 105-65 of Schedule 1

Reasons for decision

Question 1

Summary

For the purposes of section 38-445 of the GST Act (Grants of freehold and similar interests by government) we accept that you are the 'State'.

Detailed reasoning

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act. In particular, this provides that you make a taxable supply if you make the supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia and you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

An enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act). As you are registered, the supply is in (connected with) Australia and the supply is for consideration the requirements of section 9-5 of the GST Act are all satisfied in your circumstances. Therefore your supply of the land will be a taxable supply unless it is GST-free or input taxed.

GST-free supplies of land

In accordance with section 38-445 of the GST Act, a supply of a freehold interest in land by the Commonwealth, a State or a Territory is GST-free where certain requirements are satisfied. The land must be unimproved land, and the supply must either be of a freehold interest in the unimproved land, or a supply by way of long-term lease. The supply is not GST-free if, since 1 July 2000, the land has already been the subject of a supply that is GST-free under this section.

You are 'the Commonwealth, a State or a Territory' for the purposes of section 38-445

Goods and services tax ruling GSTR 2006/5 discusses the meaning of 'Commonwealth, a State or a Territory.' Our view under this ruling is that the legislation constituting a particular local government must be considered to determine whether a local government is the State for the purposes of the GST Act.

Since the issue of GSTR 2006/5, and subsequent to your supply of the real property, the ATO has recently reviewed its administrative position regarding GSTR 2006/5 and local government entities.

From an administrative perspective, and for compliance purposes, the ATO now accepts that local government bodies established under certain local government legislation are the 'State' for the purposes of applying the GST provisions referred to in paragraph 1 of GSTR 2006/5 (including section 38-445 of the GST Act).

You are a local government body established under and regulated by local government legislation to which our administrative approach applies. Therefore we accept that you are the 'State' for the purposes of section 38-445 of the GST Act.

This approach applies retrospectively, and therefore we consider that at the time of your supply of the land you were the State, therefore meeting the initial threshold criteria in section 38-445 of the GST Act.

Question 2

Summary

The sale of relevant vacant land is a GST-free supply, as we accept that section 38-445 of the GST Act applies in your circumstances.

Detailed reasoning

We consider that you (the State) have supplied a freehold interest in land.

For section 38-445 of the GST Act to apply to make your supply of land GST-free, the land supplied must be 'land on which there are no improvements' (unimproved land) at the time of the supply. Also, the land must not have already been the subject of a supply that was GST-free under section 38-445 of the GST Act.

The ATO view on improvements on land in respect of section 38-445 is explained in Goods and services tax ruling GSTR 2006/6. This explains that unimproved land is taken to be land in its natural state. To establish whether there are improvements on the land the land is compared with land in its natural state (paragraph 20 GSTR 2006/6).

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.

You have advised that there are no improvements at all on the land. We therefore expect that the land was land in its natural state. Furthermore, you have listed a number of types of human interventions that may enhance the value of land, and advised that none of those existed for this particular land. While this has not addressed every aspect in the ruling (for example soil improvements, pest removal etc), and the examples in the ruling are not an exhaustive list, on the basis of the information provided to us we accept that there are no improvements to disclose and that the land is unimproved land. This is consistent with the reference to the land being unimproved in the sale contract and the Schedule.

We also note that, based on the information in the Schedule provided, the land was held by you prior to 1 July 2000 and was not acquired post 1 July 2000. On the basis of this information no previous supply of the lot has been made by you since 1 July 2000.

Therefore all the requirements are met to enable you to use section 38-445 of the GST Act to treat the supply of land as GST-free.

We therefore accept (for the purposes of section 38-445 of the GST Act) that you are the State, that the land you have supplied is land on which there are no improvements, that you supplied the land by way of a freehold interest in the land and that the land had not already been the subject of supply that is GST-free under section 38-445.

Conclusion

It follows that your supply of land was therefore a GST-free supply under section 38-445 of the GST Act.

We note your comments that the supply was made within the four year time limit prescribed in the Taxation Administration Act 1953 (TAA). We also note the application of section 105-65 of Schedule 1 to the TAA (section 105-65). This places a further restriction on GST refunds.

As you have made a GST-free supply, but have remitted GST in connection with this supply, you have therefore remitted an amount in excess of what was legally payable on the supply. That is, you have overpaid an amount of GST.

Section 105-65 applies and the Commissioner need not give you a refund if you overpaid an amount because a supply was treated as a taxable supply when the supply was not a taxable supply and one of the following applies: either the recipients have not been reimbursed an amount corresponding to the overpaid GST, or the recipient of the supply was registered or required to be registered.

Section 105-65 applies such that the Commissioner need not give a refund of the overpaid amount, but has discretion to do so in appropriate circumstances. This discretion is explained, and guidance as to its use is given, in Miscellaneous Taxation Ruling MT 2010/1. You have advised that you do not need us to consider the exercise of the discretion in this ruling.