Edited version of your written advice

Authorisation Number: 1012705906709

Ruling

Subject: GST and the Margin Scheme

Question 1

Are you entitled to a refund of overpaid GST related to sales of real estate under the margin scheme where the GST payable was previously miscalculated and where sales were completed during the relevant period?

Answer

No. However, you may be entitled to a refund of GST of a different amount. As you have not submitted an approved valuation we cannot consider the amount of GST refund that you may be entitled to at this stage.

This ruling applies for the following period

Relevant facts and circumstances

You are an entity and own substantial parcels of land, much of which you have owned since before 1 July 2000.

You owned parcels of land which were subdivided and portions sold off since 1 July 2000.

You contend that these subdivided lots were unimproved at 1 July 2000 and are collectively referred to herein as the 'Ruling Properties'. A detailed description of the lots comprising the Ruling Properties is attached to your application for a private ruling and is marked as Annexure A.

The sales of the Ruling Properties have been pursuant to standard form Real Estate Institute contracts for the sale of land. The standard form contract contains a box to be ticked to indicate whether the margin scheme was to be adopted by the parties however the contract for the Ruling Properties was not ticked to adopt the margin scheme.

You inform us that:

• The price at which the Ruling Properties were sold was the market value determined by you as the price that a willing but not anxious vendor and purchaser would enter an agreement to transfer the lands.

• You set the price without taking into consideration any GST that may be payable on the sale of each parcel of land.

• You operated in a free market and sold the land at the going market rate.

• In arriving at the price at which the lots of land was advertised, you did not start with a particular price and then added GST to the prices obtained for the sale of each property. The prices are even amounts, for example $46,000.

• The GST paid by you on each parcel of land is a cost absorbed by you in the same way that costs of undertaking subdivision work including the construction of roads, drainage, sewage and other infrastructure.

You believe that none of the purchasers of the Ruling Properties were registered or required to be registered for GST

You have kept records of the land sales made in the relevant period covered by this ruling application.

You have attached to this application for private ruling, and marked as Annexure A, a table of the land sales made in the relevant period which describe the particulars of the Ruling Properties sold.

You advise that Business Activity Statements (BAS) lodged by you for the relevant period representing the period during which the Ruling Properties were sold, you reported the full amount of GST being 1/11 of the sale price of each of the properties.

You submit that you should have applied item 4 of the table in subsection 75-10(3) of the GST Act in calculating the GST instead of paying 1/11^th of the sale price of each of the properties.

You have attached to this application for a private ruling, and marked as Annexure 'B1, B2 and B3', aerial photographs and a stage plan which shows the en globo parcel of land that was subdivided into the Ruling Properties at issue in this application. Photograph Annexure B1 was taken sometime in 2004.

You contend that as at 1 July 2000, these parcels were all unimproved and in their natural state being devoid of built structures and comprised of predominantly flat land with native grasses, shrubs and trees.

You advise that:

• Under the contract for sale, you and the purchaser opted to not apply the margin scheme to the sale of the Ruling Properties and therefore GST was calculated at 1/11th of the sales price of the Ruling Properties.

• The parties to the sale of the Ruling Properties have subsequently agreed to apply the margin scheme to the sale.

• Attached to this application for a private ruling and marked as Annexure 'C' are copies of the agreements executed by the parties evidencing their intention to apply the margin scheme to the sale of the Ruling Properties.

You inform us that the lots supplied were created by a subdivision of land. No physical improvements were made on the land, however some works were carried out consistent with a subdivision. For example, each of the lots, after subdivision, had been enhanced at the time of sale by way of access to utilities or the ability to connect to utilities, such as sewer, water and electricity.

You sought extensions of time to obtain agreements with the purchasers that the margin scheme is to apply to the sales of the Ruling Properties, and these extensions were granted by the Commissioner.

In relation to this application for a private ruling, you sought an extension of time to obtain valuations which was granted. However a significant amount of time has passed and you have not been able to submit a valuation as intended.

Relevant legislative provisions

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

Reasons for decision

Unless otherwise stated, all legislative references are legislative references to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 1

Summary

We have concluded that the Ruling Properties is land on which there are improvements as at 1 July 2000 for the purposes of Division 75, therefore , Item 3 of the table in paragraph 75-10(3)(a) applies. Consequently, the appropriate valuation date is as at 1 July 2000.

As you have been unable to provide a valuation we cannot consider the amount of GST refund that you may be entitled to at this time.

Detailed reasoning

The Commissioner accepts that certain entities can apply item 4 of the table in subsection 75-10(3), where relevant.

The Commissioner has provided clarification on the meaning of the phrase "land on which there are no improvements" in 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).

It is important to consider the view outlined in GSTR2006/6 in its entirety in order to determine the Commissioner's view on what constitutes improvements on the land. The premise of the Commissioner's view is outlined at paragraph 20 which states:

20. Unimproved land is taken to be land in its natural state. Thus, to establish whether there are improvements on the land for the purpose of these provisions, the land is compared with land in its natural state.

In relation to any improvements on the land from the land's natural state GSTR 2006/6 follows the principle established by High Court in Morrison v. Federal Commissioner of Land Tax (1914) 17 CLR 498 and states at paragraph 22:

22. Applying this principle means 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 land.

Paragraph 23 of GSTR 2006/6 provides that where there have been a number of human interventions on the land it is necessary to establish whether any one of the human interventions enhances the value of the land at the relevant date. Whether the net value of the human interventions enhances the overall value of the land is irrelevant.

Paragraph 25 of the ruling provides a list of examples of human interventions which may enhance the value of land that includes:

• houses, town-houses, stratum units, separate garages, sheds and other out-buildings

• commercial and industrial premises

• formed driveways, swimming pools, tennis courts, and walls

• any other similar buildings or structures

• 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

• removal of rocks, stones or soil

• filling of land.

You have stated that the aerial photograph, marked as Annexure B1 has been taken in 2004. It shows that the en globo land, prior to the subdivision and sale of the Ruling Properties had already been extensively cleared of native vegetation, scrub, bushland and was devoid of trees. Therefore we consider that the en globo land is considered to be improved land prior to subdivision into the Ruling Properties.

Now we need to consider if these improvements of extensive clearing of native vegetation, scrub, bushland and trees had been undertaken as at or prior to 1 July 2000 and had not been exhausted such that the land had returned to its natural state by 2004 and before the subdivision of the en globo land.

From the photograph Annexure B1, it is evident that the surrounding land shows significant urban development on one side and extensively cleared land on the other side. This state of the surrounding area was during 2004 as you have advised. Although not conclusive, it appears that the en globo land, from which the Ruling Properties has been subdivided, would have been subject to the same interventions as the surrounding cleared land, and most likely since prior to 2004.

It is reasonable to conclude therefore on the submitted information, that the en globo land in question may have already been extensively cleared sometime prior to 2004. It is also reasonable to conclude, based on the state of the surrounding land, that the en globo land in question may have been already extensively cleared since 1 July 2000, and probably prior. It is also reasonable to conclude that the extensive clearing of native vegetation, scrub, bushland and trees that had been undertaken as at or prior to 1 July 2000 had not been exhausted such that the land had returned to its natural state before 2004 and before the subdivision of the en globo land.

This extensive clearing per se is an improvement as highlighted in the above paragraph 25, which enhanced the value of the land some time prior to July 2000. It is reasonable to conclude, on the balance of probability, that this extensive clearing had not been exhausted and that the en globo land from which the Ruling Properties were subdivided had not returned to its original native state before 2004 to again become unimproved.

Consequently, we conclude that the Ruling Properties is land on which there are improvements as at 1 July 2000 for the purposes of Division 75.

As we have concluded that the Ruling Properties is land on which there are improvements as at 1 July 2000 for the purposes of Division 75, item 3 of the table in paragraph 75-10(3)(a) applies. The appropriate valuation date therefore is as at 1 July 2000.

Valuation

Any valuation must comply with the requirements of A New Tax System (Goods and

Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 (MSV 2005/3) and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (MSV 2009/1) as the case may be in relation to the Ruling Properties.

You have not been able to submit a new valuation for the purposes of this private binding ruling, as intended. Consequently, we can only consider the valuation as submitted per Annexure A.

The valuation for each allotment you initially submitted with your application for a private ruling are based on market values for the Ruling Properties as determined by you to be the prices that willing but not anxious vendors and purchasers would enter agreements to transfer the particular allotments. The particular allotments were sold by you at the going market rate. The valuations do not comply with the requirements of MSV 2005/3 nor MSV 2009/1 as the case may be in relation to the Ruling Properties as there is no valuation of the en globo land from which the allotments sold by you were created, nor is there appropriate valuation apportionment of the individual allotments.

Therefore, the valuation as submitted per Annexure A is not an approved valuation under subsection 75-35(2). As the valuation is not an approved valuation for the purposes of Division 75, there is no appropriate refund amount that you have sought to claim. Therefore, we cannot consider the amount of GST refund that you may be entitled to.