Edited version of your written advice

Authorisation Number: 1013004557958

Date of advice: 2 June 2016

Ruling

Subject: Sale of land

Question

Will your supply of the Property be GST-free under section 38-445 of the GST Act, being a supply of land on which there are no improvements as at the relevant date?

Answer

No

Relevant facts and circumstances

You are registered for GST.

On ddmmyyyy, you entered into a Contract of Sale with the purchaser for the sale of the Property.

Historic ownership and use of the Property

The Property was historically used for livestock grazing, followed by residential use until approximately yyyy.

The majority of the Property was acquired by you in yyyy and continued to be held by you until the date of sale to the purchaser.

There have been no other sales or transfers of the Property since mid-2000.

The site was used for a specific purpose from yyyy through to the late yyyys. Changes in the building configuration occurred throughout this period as well as storage of various materials and equipment including buildings used for administration, maintenance and other functions.

From the late yyyys through to yyyy, the Property was no longer used for the initial purpose. However, the Property continued to be owned by Council and was used for storage and various uses.

The buildings and other structures present on the Property were progressively removed between yyyy and yyyy.

Your Agent's inspection of the land on ddmmyyyy revealed the following:

• no buildings or other structures were present on the Property, following the demolition of all buildings and other structures that previously existed on the Property

• part of the Property is covered in deteriorated driveways (most notably the central driveway extending from the road)

• a manway and test wells remain on the site

• the fencing adjacent to the road is in a generally deteriorated state and a number of gaps are present

• a disused carpark is located adjacent to the entrance to the Property.

The driveway and carpark are evidenced at the relevant internet site which shows that the Property is level and has been cleared (apart from a few trees). It also shows that power lines are still connected to the property.

Information at the relevant websites indicates that the natural vegetation in this area was open forest with areas of grassland.

Environmental reports and remediation

Various environmental audits conducted at the Property point to potential sources of contamination from the Property's prior use, including a storage area for chemicals and the existence of relevant storage tanks.

The relevant Environmental Audit Report identified various potential sources of contaminants of potential concern.

The report notes that power lines and other relevant services were also present on the site.

The report details the remedial works undertaken in relation to these potential sources of contamination.

Following the remediation work, a certificate was issued stating the condition of the site is neither detrimental nor potentially detrimental to any beneficial uses of the site.

Practising Valuer's opinion

An opinion was obtained from a Practising Valuer.

The opinion makes the following observations:

• the highest and best use of the Property is for medium density residential development.

• the site has had various uses and associated structures - which have been subsequently removed.

• various environmental audits have identified potential sources of contaminants of potential concern.

• remediation work has been undertaken, and a Certificate of Environmental Audit declaring the site is now environmentally safe for development of the land for residential uses has been sighted.

• 'A review of the reference material provided indicates that the subject property did not have vegetation which would have been cleared, despite the fact that the land was used for grazing based on its known history.'

• '…any levelling which may have been undertaken for the previous buildings has now been disturbed from the removal of the obsolete buildings and so does not constitute an improvement to the land.'

• the boundary fencing surrounding the property was in a dilapidated state and was not considered to be an improvement.

• '…there appear to be utility services (power and water) to part of the subject site but I have not been able to ascertain their condition…in light of the current zoning of the land for medium to high density residential development that any existing services which may be to the land will not be suitable for the higher development density potential at the subject property, and therefore these utilities do not enhance the value of the land, or its usefulness.'

The Practising Valuer expressed the opinion that the Property is 'unimproved' for the purposes of section 38-445.

You provided various documents:

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

Reasons for decision

In this reasoning,

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

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

For the sale of the Property to be GST-free under section 38-445, the following requirements must be satisfied:

• the Property must be supplied by the Commonwealth, a State or Territory

• the Property must not have been previously the subject of a supply that was GST-free under section 38-445 after 1 Jul 2000, and

• there must be no improvements on the Property at the time the supply is made

The land must be supplied by the Commonwealth, a State or Territory

The Commissioner accepts at paragraph 6 of Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory' (GSTR 2006/5) that the Commonwealth, a State or Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1. The Commissioner also confirms at paragraph 13 of GSTR 2006/5 that local councils are the 'State' for the purposes of the GST Act. Council therefore meets this requirement.

Previous GST-free supplies after 1 July 2000

As stated in the facts, there has not been a previous GST-free supply of the Property since mid- 2000 for the purposes of subsection 38-445(2), as Council has held the Property since it purchased it in XXXX. This requirement is therefore met.

Land on which there are no improvements

Paragraph 22 of Goods and Services Tax Ruling 2006/6: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6) explains 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.

As stated in paragraph 20 of GSTR 2006/6, unimproved land is taken to be land in its natural state. 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.

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

As per paragraph 24 of GSTR 2006/6, objectivity is required when establishing whether a human intervention enhances the value of the land:

24. Determining whether a human intervention enhances the value of the land entails an objective test. This means that whether an intervention enhances the value should not be determined by reference to use or intended use by either the supplier or the recipient.

An objective view of whether any of the human interventions would be of value to anyone, for any purpose whatsoever, is necessary in order to correctly establish whether there are any improvements on the land. In other words, for whoever purchased that land, any particular intervention would relieve them of the cost of doing that themselves. The intended or subjective use of a particular person, including the notion of 'highest and best use' is irrelevant.

The principle from Lewis Kiddle and another v. Deputy Federal Commissioner of Land Tax 27 CLR 316 is that 'the amount to be attributed to value of improvements would be equal to the amount which he gained or saved by reason of the improvements having been made, he being thereby relieved from the necessity of making them.'

Paragraph 25 of GSTR 2006/6 provides a list of examples of human intervention which may enhance the value of land and 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, and

• filling of land.

The human interventions, which may enhance the value of land and which are relevant in relation to the Property, are:

• industrial premises and structures

• utilities

• clearing

• levelling of the land

• boundary fencing

Industrial premises and structures

Council has constructed / installed various buildings and structures for use in its operations. However, these have been removed and no longer constitute improvements to the Property

Utilities

The Practising Valuer states 'there appear to be utility services (power and water) to part of the subject site'. He further states '… in light of the current zoning of the land for medium to high density residential development that any existing services which may be to the land will not be suitable for the higher development density potential at the subject property, and therefore these utilities do not enhance the value of the land, or its usefulness.'

The Environmental Audit Report confirms the presence of power lines and remnant services.

As stated at paragraph 24 of GSTR 2006/6, whether a human intervention enhances the value of the land should not be determined by reference to use or intended use by either the supplier or the recipient.

The increase in the value of the Property from this human intervention is the cost of installing the services - which a purchaser would not be required to pay.

Clearing

Information at the relevant websites indicates that the natural vegetation in this area was open forest with large areas of grassland.

Apart from the few remaining trees and the deteriorated central driveway extending from the road, the Property has been cleared. The clearing does not appear to have been exhausted, nor has it substantially deteriorated. Therefore, clearing of the Property is a human intervention that enhances the value of the land in accordance with paragraphs 22 and 23 of GSTR 2006/6.

Levelling

The Practising Valuer states 'any levelling which may have been undertaken for the previous buildings has now been disturbed from the removal of the obsolete buildings and so does not constitute an improvement to the land.'

It is not clear how much levelling has taken place. However, the levelling does not appear to have been exhausted, nor has it substantially deteriorated. Therefore, any levelling of the Property is a human intervention that enhances the value of the land in accordance with paragraphs 22 and 23 of GSTR 2006/6.

Fencing

On the basis that the boundary fencing surrounding the property is in a dilapidated state, it is not considered to be an improvement.

Contamination and remediation

The Environmental Audit Report identified various potential sources of contaminants of potential concern

The report also details the remedial works undertaken in relation to these potential sources of contamination, after which a certificate was issued stating the condition of the site is neither detrimental nor potentially detrimental to any beneficial uses of the site.

On the basis that the certificate has been issued, any past contamination does not reduce the value of any previous human interventions. Further, even though the need for any future remedial work may partially or fully offset the value of other human interventions, such as clearing and levelling, this is irrelevant. As explained in paragraph 23 of GSTR 2006/6, if any of the human interventions located on the land enhance its value at the relevant date, then there are improvements on the land. This is regardless of whether the net value of the human interventions enhances the overall value. The requirement for remedial work will not extinguish or reduce the value of the individual human interventions such as clearing, levelling and connection of services.