Edited version of your written advice

Authorisation Number: 1051518191913

Date of advice: 21 May 2019

Ruling

Subject: GST and land on which there are no improvements

Question 1

Will you be supplying land on which there are no improvements, for the purposes of Subdivision 38-N and Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the only human intervention is temporary fencing that is only attached to the land by reason of its own weight and that will be removed from the land prior to settlement?

Answer

Yes.

Question 2

Will you be supplying land on which there are no improvements, for the purposes of Subdivision 38-N and Division 75 of the GST Act, where the only human intervention is small parts/remnants of internal fencing where the original purpose of that internal fencing cannot be ascertained?

Answer

Yes.

However, if the original purpose of the fencing would be ascertainable but for one or more missing sections or the fencing fully encloses any area of the land, you will not be supplying land on which there were no improvements.

Question 3

Will you be supplying land on which there are no improvements, for the purposes of Subdivision 38-N and Division 75 of the GST Act, where the only human intervention is small remnants of incomplete boundary fencing?

Answer

Yes.

Relevant facts and circumstances

You are a body corporate constituted under the relevant legislation as agent for the Crown in right of the relevant State or Territory.

You are registered for GST.

You make supplies of land (where subsection 38-445(2) does not apply) in the following separate circumstances:

● The only human intervention is temporary fencing that is only attached to the land by reason of its own weight and that will be removed from the land prior to settlement.

● The only human intervention is small parts/remnants of internal fencing where the original purpose of that internal fencing cannot be ascertained.

● The only human intervention is small remnants of incomplete boundary fencing.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-445(1A)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-445(2)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3)

Reasons for decision

In this reasoning, please note:

● 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

● all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au

You are an agent of the Crown in right of the relevant State or Territory, pursuant to the Act under which you were established.

Therefore, as explained in Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory’, you are considered to be the State for the purposes of the GST Act.

A supply of land by the Commonwealth, a State or a Territory of land is GST-free under subsection 38-445(1) if certain conditions are met. Subsection 38-445(1) states:

A supply by the Commonwealth, a State or a Territory of land on which there are no improvements is GST-free if:

(a) the supply is of a freehold interest in the land; or

(b) the supply is by way of *long-term lease.

A supply of land by the Commonwealth, a State or a Territory of land is GST-free under subsection 38-445(1A) if certain conditions are met. Subsection 38-445(1A) states:

A supply by the Commonwealth, a State or a Territory of land is GST-free if:

(a) the supply is of a freehold interest in the land, or is by way of *long-term lease; and.

(b) the Commonwealth, State or Territory had previously supplied the land, by way of lease, to the *recipient of the supply; and

(c) at the time of that previous supply, there were no improvements on the land; and

(d) because conditions to which that lease was subject had been satisfied, the recipient was entitled to the supply of the freehold interest or the supply by way of long-term lease.

However, a supply of land will not be GST-free if the land in question has already been the subject of a supply that was GST-free under section 38-445.

Item 4 of the table in subsection 75-10(3) (Item 4) provides that valuations may be used to work out the margin for the purpose of the margin scheme if the supplier is the Commonwealth, a State or a Territory and has held the interest, unit or lease since before 1 July 2000, and there were no improvements on the land or premises in question as at 1 July 2000. The valuation is to be made on the day that the taxable supply takes place and as if there were no improvement on the land or premises on that day.

Goods and Services Tax Ruling GSTR 2006/6DC Draft Consolidation - Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 discusses the meaning of the phrase ‘improvements on land’ in the context of the phrases ‘improvements on the land’ or ‘no improvements on the land’ in Subdivision 38-N and Division 75.

Paragraph 20 of GSTR 2006/6DC explains that to establish whether there are improvements on the land, that land is compared with land in its natural state.

At paragraph 22, GSTR 2006/6DC adopts the position that for there to be ‘improvements on the land’, the following requirements need to be satisfied:

● there must be 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, usefulness of the land, or both the value and usefulness at the relevant date for ascertaining whether there are improvements on the land.

Determining whether or not human intervention enhances the value of the land entails an objective test. Paragraph 25 of GSTR 2006/6DC lists a number of examples of human interventions that may enhance the value or usefulness of the land, including fencing – internal or boundary fencing.

However, not all human intervention enhances the value or usefulness of the land. Paragraphs 26 to 31 of GSTR 2006/6DC look in more detail at the nexus between the human intervention and enhancement of the land. Paragraphs 28, 30 and 30A state:

28. In other circumstances, human interventions that were once improvements but that have deteriorated over time or have contributed to land degradation, may no longer enhance the value or usefulness of the land and are not improvements. For example, clearing is a human intervention which ordinarily enhances the value or usefulness of the land. However, clearing may deteriorate over time with the regrowth of the same type of vegetation or even different vegetation (for example, lantana, blackberry or other noxious weeds). Clearing also may degrade the land by later causing erosion or salinity problems.

…

30. In some situations, improvements may have been on the land but no longer exist as improvements on the relevant day specified in the table below. For example, bushland owned by the Commonwealth, a State or a Territory may have originally been fenced, but due to deterioration, no valuable or useful fencing exists on the relevant day.

30A. In other circumstances, a human intervention that enhanced the value or usefulness of land will not cease to enhance the value or usefulness of the land simply because of a change in the preferred use of the land. In other words, a human intervention on land will not cease to be an improvement if there is no physical change to it. For example, fencing may be constructed to enhance the value or usefulness of land used for farming. The fencing may remain in good repair. If the land can now be better used for mining, for which the fence will be of no use, it does not mean that the fencing no longer enhances the value or usefulness of the land. Compared to the land in its natural state, the fencing continues to enhance the value or usefulness of the land to an occupier who wants to put the land to use for farming.^...

Temporary fencing

Temporary fencing that is only attached to the land by reason of its own weight and that will be removed prior to settlement will not be an improvement that exists on the land.

The relevant point in time for determining when an improvement may exist on the land (for the purposes of section 38-445) is when the supply is made. In the context of a disposal of real property on ordinary terms, the day the supply is made will be the date of settlement.

In the circumstances outlined above, the temporary fencing will have been removed from the land prior to settlement. As the temporary fencing will not exist on the land at settlement, the temporary fencing will not be an improvement on the land for the purposes of subdivision 38-N.

For the purposes of item 4 of subsection 75-10(3), if the only human intervention as at 1 July 2000 was temporary fencing attached to the land by reason of its own weight, we accept that this was not an improvement on the land as at 1 July 2000.

Internal fencing

Where the original purpose of small parts/remnants of internal fencing cannot be ascertained, this is evidence that:

(a) the small parts/remnants are not improvements on the land as the fencing does not enhance the value of the land or increase the usefulness of the land, and/or

(b) any prior usefulness or enhancement to the value of the land has been exhausted, as the fencing no longer serves its intended purpose.

However, this principle does not apply if:

(a) the original purpose of the fencing would be ascertainable but for one or more missing sections, or

(b) the fencing fully encloses any area of the land.

In the circumstances outlined above, the small parts/remnants of internal fencing will not be an improvement on the land for the purposes of subdivision 38-N or item 4 of subsection 75-10(3).

Incomplete boundary fencing

Small remnants of incomplete boundary fencing are not improvements as it is considered that due to deterioration any improvement would be exhausted.

In the circumstances outlined above, the small remnants of incomplete boundary fencing will not be an improvement on the land for the purposes of subdivision 38-N or item 4 of subsection 75-10(3).