Edited version of your written advice

Authorisation Number: 1012718373087

Ruling

Subject: Refund of overpaid GST

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

References to 'MSV 2005/3' and 'MSV 2009/1' are references to A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 respectively .

Question 1

Is each lot of land, which is the subject of this ruling, land on which there are no improvements as at 1 July 2000?

Answer

Yes.

Question 2

If he answer to Question 1 is 'Yes', in part or in full, are you entitled to a refund of overpaid GST related to the sales of these lots of land where the GST payable was previously miscalculated?

Answer

Yes, in full.

Question 3

Where applicable may you have an additional period of time within which a valuation may be made?

Answer

This question is no longer applicable.

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 including the relevant period.

You contend that:

• these subdivided lots were unimproved at 1 July 2000 and are collectively referred to herein as the 'Properties'. the photo in Annexure D is strong evidence that the en globo land from which the Properties were created was unimproved land in its natural state as at 1 July 2000. The land is shown to be consistent with the natural terrain, shows no evidence of any improvements having been made and was comprised of gently sloping but predominantly flat land and covered with dense native grasses, bushes, shrubs and trees. The land was also devoid of built structures of any kind. There were no services on the lots of land such as water, sewer and power. There were no human interventions that could increase the value of any lot.

• The lots 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. Accordingly, the individual lots were improved land at the time of sale for the purposes of valuation.

• the aerial photographs reveal what could be interpreted as dirt pathways transversing the en globo land between patches of native flora. These dirt areas could have been caused by native fauna as there is no evidence to suggest they were caused by human intervention. To the extent it is believed that these dirt areas were or could have been caused by human interventions, it is submitted that the interventions could not possibly have enhanced the value of the en globo land. Further, these dirt areas appear to be consistent with fire breaks which are recognised by the Commissioner in paragraph [27] of GSTR 2006/6 as not enhancing the value of the land

• there is no evidence that any of the en globo land was levelled at 1 July 2000

• there is no evidence that any of the en globo was cleared at 1 July 2000

• as at 1 July 2000, these parcels were in the same condition as shown in the June 1999 photograph

• the overpayment of GST on the sale of land is a taxable supply and the overpayment results from a miscalculation of the margin and consequently the GST payable. The condition in subdivision 105-65 1(b) is not met. Accordingly, subdivision 105-65 does not apply to restrict the refund to which this ruling application relates

You advise that:

• the sales of the subject lots have been pursuant to standard Contracts. Each of the contracts provide unless otherwise specified in this contract, the Purchase Price includes any GST payable on the supply of the Property to the Buyer." Term 2.1 restates this same proposition. None of the contracts provide otherwise, there are no special conditions dealing with GST. Accordingly the purchase price is inclusive of GST. The sales were treated as fully taxable sales and you paid GST to the ATO on each of the sales in the relevant tax periods, calculated at 1/11th of the GST inclusive sales price

• the parties to the sales of the Properties did not choose to use the margin scheme at the time of sale but have subsequently adopted the margin scheme in accordance with extensions of time approved by the Commissioner.

• the price at which the 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 $

• 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. The amount of GST is not the subject of any of the contracts and was wholly a matter for yourself and was absorbed by you and was not passed on to the purchasers

• 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 during the relevant period which is the relevant period covered by this ruling relates.

• Business Activity Statements (BAS) lodged by you for the relevant period was mistakenly calculated at 1/11th of the sale price of each of the Properties.

• 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 1/11th of the sale price of each of the properties.

• you have chosen Method 3, in accordance with both margin scheme determinations MSV 2005/3 and MSV 2009/1 as the case may be for the Properties, for valuation purposes

• you have used your rating value which is also the value for land tax purposes. The date of valuation was a date. You have submitted a screen shot of your rating system is an example of the valuation process.

To your application for private ruling you have attached and marked as:

• Annexure A, a detailed description of the lots comprising the Properties

• Annexure B, a sample contract for the sale of a property and you submit that this sample contract is representative of all of the contracts for sale of the Properties.

• Annexure C, copies of the agreements to apply the Margin scheme with those purchasers and marked as Annexure C

• Annexure D, an aerial photograph taken in June 1999 which shows the parcels of land making up the Properties at issue in this application.

• Annexure D1, an aerial photograph taken in December 2013 which shows the parcels of land making up the Properties at issue in this application

Relevant legislative provisions

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

Taxation Administration Act 1953

Reasons for decision

Question 1

Summary

We have concluded that each lot of land, the subject of this ruling and referred to as the Properties, is land on which there are no improvements as at 1 July 2000 for the purposes of Division 75, therefore , Item 4 of the table in paragraph 75-10(3)(a) applies.

Detailed reasoning

The Commissioner accepts that local government councils 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 D has been taken in June 1999. It shows that the en globo land prior to the subdivision and sale of the Properties in a predominantly natural virgin state and in very similar condition to the greater land surrounding it. There appears to be some evidence of fire breaks or naturally formed trails. We cannot conclude that the trails have been created by human intervention, nor can we conclude that these trails and fire breaks have enhanced the value of the land.

Marked as Annexure D1, is a photograph taken in December 2013 which shows six of the lots in question still in a predominantly natural virgin state and in very similar condition to the greater land surrounding them. From the slow pace of development between the dates of the photographs, it is reasonable to conclude that, as at 1 July 2000, the en globo land was in the same condition as that shown in the June 1999 photograph.

On the basis of the information and evidence submitted it is reasonable to conclude that there are no human interventions on the en globo land that has enhanced the value of the land as at 1 July 2000. Therefore the en globo land, prior to the subdivision and sale of the Properties which are the lots the subject of this ruling, is land on which there are no improvements as at 1 July 2000.

Question 2

Summary

You have used the unimproved capital value for rating or land tax purposes as the basis for valuation and therefore have satisfied the requirements of MSV 2005/3 and MSV 2009/1, as the case may be, for each lot.

Consequently, you are entitled to a refund of overpaid GST.

Detailed reasoning

As you have already advised that there have been improvements on each lot of land as at the day on which the taxable supply had taken place, subsection 75-10(3A) provides that the valuation of each lot is to be made as if there are no improvements on the day the taxable supply takes place for each lot.

You have chosen Method 3, in accordance with both margin scheme determinations MSV 2005/3 and MSV 2009/1 as the case may be for the Properties, for valuation purposes. Consequently you have used your rating value which is also the value for land tax purposes and is the unimproved capital value for each individual allotment in question. The date of valuation for each lot was a date and this date precedes the valuation dates for all of the allotments in question, being the respective dates of the taxable supplies.

Your valuations therefore comply with the requirements determined by the Commissioner under subsection 75-35(1) and are therefore approved valuations for the purposes of Division 75.

Regarding the overpayment of GST, paragraphs 25B and 84 of Miscellaneous Tax Ruling MT 2010/1: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (MT 2010/1) state:

25B. The Commissioner takes the view that section 105-65 will not apply in cases where the supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. Examples of such cases include where:

• a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;

• supplies are treated as taxable under the margin scheme where there was an error in the calculation of the margin;

• GST on supplies of real property has been calculated under the ordinary provisions, when in fact the margin scheme applied;

• …

84. The Commissioner takes the view that section 105-65 will not apply in cases where:

• supplies are treated as taxable under the margin scheme where there was an error in the calculation of the margin; or

• GST on supplies of real property has been calculated under the ordinary provisions when in fact the margin scheme applied.

Because you calculated GST as 1/11th of consideration received you made an error in the calculation of GST payable and, in accordance with MT 2010/1, section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) will not apply.

You subsequently calculated the correct margin as the difference between the consideration received and the valuation of each individual lot as outlined in your Annexure A and the total of all margins is $. The GST payable should have been of 1/11th of $ being $. You incorrectly calculated and paid GST of $ and thus the overpaid GST amount is $. As section 105-65 of Schedule 1 to the TAA does not apply, you are entitled to a refund of overpaid GST of $ in this case.