Edited version of your private ruling

Authorisation Number: 1012452947158

Ruling

Subject: Goods and services tax (GST) and supply of real property

Question 1

Does section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to make your supply of land GST-free?

Answer

Yes.

Relevant facts and circumstances

· You represent a state and are registered for goods and services tax (GST).

· You are the vendor of land.

· You have entered into a contract of sale for the land (and have provided a copy).

· The contract provides that the purchase price does not include GST. The contract provides that upon completion the Purchaser is to pay the Vendor, in addition to the purchase price, an amount equivalent to the amount payable by the Vendor as GST on the supply of the property.

· The land in question has had a number of human interventions (fencing, sewer line and stormwater drain, clearing/maintenance/mowing).

· The land was a reserve as at 1 July 20XX and was converted to freehold some time after. The land has been owned by the state since prior to 1 July 20XX and has not been supplied previously by the state as a GST-free supply under section 38-445 of the GST Act.

· You have already obtained a private ruling regarding the supply of the real property.

· This private ruling considered that, on the facts provided at that time, there were improvements on the land. It therefore found that the margin scheme was applicable for an improved piece of government land.

· Since the issue of the private ruling the purchaser has obtained, and provided to us, a valuation report on the property. The report concludes that the human interventions on the land noted above are not considered to enhance the value of the land.

· The parties to the sale contract have now agreed that you may seek a further ruling to determine whether section 38-445 of the GST Act will apply to the supply of the land (to make the supply a GST-free supply).

Relevant legislative provisions

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

Section 9-5

Section 38-445

Reasons for decision

Summary

Section 38-445 of the GST act applies to make your supply of land GST-free.

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 20XX, the land has already been the subject of a supply that is GST-free under this section.

We consider that you are the State, and that you will supply a freehold interest in land. The land has not been previously supplied as a GST-free supply under section 38-445 of the GST Act.

A further requirement of section 38-445 of the GST Act to apply to make your supply of land GST-free is that the land supplied must be 'land on which there are no improvements' (unimproved land) at the time of the supply.

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.

Our previous ruling found that, on the facts provided at the time, there were improvements on the land. This was on the basis of the property being bounded by residential properties and there is boundary fencing in place (although this varied in age, style and condition), it having a sewer line and storm water drainage, and the land being cleared and maintained.

These are all examples of a human intervention that may enhance the value of land. However, GSTR 2006/6 considers that some interventions that were once improvements may have deteriorated over time or may not enhance the value of the land. To be an improvement, the human intervention must enhance the value of the land.

Paragraph 36 of GSTR 2006/6 advises as follows:

As the issue of whether there are improvements on the land is a question of fact, it may be prudent to engage a professional valuer to establish this.

You have provided a recent valuation of the land (after the date of your first private ruling) that concludes that the human interventions to the land are not considered to enhance the value of the land.

The valuation states that it specifically considers whether the human interventions are improvements within the meaning of the GST Act. The valuation advice also states that the valuers have been provided with a copy of GSTR 2006/6.

The valuation considers each aspect of human intervention on the land (the fencing, the sewer line, the stormwater drain and the clearing, maintenance and mowing) and provides reasons for why they are not considered to enhance the value of the land. In particular, the valuer finds that there has been no recent clearing, the stormwater enhances the adjoining properties but not the relevant property, the sewer manhole is a potential impediment to building and some of the fencing encroaches and has gates that will no longer be usable and will incur costs for its removal.

Based on this valuation, and the guidance provided by GSTR 2006/6, we accept that in these circumstances the human interventions on the land are not improvements on the land, and therefore at the time of the supply the land will be unimproved land for the purposes of section 38-445 of the GST Act.

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.

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.

This advice replaces the previous advice given to you. Our previous advice is no longer relevant due to the change in material facts.