Edited version of private advice

Authorisation Number: 1051650951586

Date of advice: 27 July 2020

Ruling

Subject: GST and the margin scheme

Question 1

For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply, will the sale of the freehold interests in the Lots comprising Property A be a single supply?

Answer

Yes. Item 4 of the table in subsection 75-10(3) of the GST Act requires identification of the land that is the subject matter of the supply. For item 4 purposes, the supplies of the freehold interests in the Lots comprising Property A is a single supply of land as the subject matter of the supply is the totality of Property A.

Question 2

For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75-10(3) of the GST Act apply, will the sale of the freehold interest in each Lot comprising Property A be a single supply?

Answer

No. Item 4 of the table in subsection 75-10(3) of the GST Act requires identification of the land that is the subject matter of the supply. For item 4 purposes, the supplies of the freehold interests in the Lots comprising Property A is a single supply of land as the subject matter of the supply is the totality of Property A.

Question 3

For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75-10(3) of the GST Act apply, will the sale of the freehold interests in the Lots comprising Property B pursuant to Contract B be a single supply?

Answer

Yes. Item 4 of the table in subsection 75-10(3) of the GST Act requires identification of the land that is the subject matter of the supply. For item 4 purposes, the supplies of the freehold interests in the Lots comprising Property B is a single supply of land as the subject matter of the supply is the totality of Property B.

Question 4

For the purposes of working out whether the circumstances specified in the second column of item 4 of the table in subsection 75-10(3) of the GST Act apply, will the sale of the freehold interest in each Lot comprising Property B be a single supply?

Answer

No. Item 4 of the table in subsection 75-10(3) of the GST Act requires identification of the land that is the subject matter of the supply. For Item 4 purposes, the supplies of the freehold interests in the Lots comprising Property B is a single supply of land as the subject matter of the supply is the totality of Property B.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for GST.

You are a 'State' for GST purposes.

You carry on an enterprise involving the purchase, sale and development of real property.

Property A and Property B (collectively, the Land) are situated in Australia.

Property A comprises of various Lots.

Property B comprises of various Lots:

You are the registered proprietor of a freehold interest in each Lot comprising the Land.

The Land was previously owned by another government agency from before 1 July 2000 and the Land was transferred from that government agency to you pursuant to an order of the Minister made under the relevant legislation.

Prior to you becoming the owner of the Land, a number of the Lots contained in Property A and Property B were previously used for the purposes of farming activities, however the farming activities ceased long (i.e. a number of decades) before you became the owner of the Land.

You have identified that there are various human interventions on the Land. You have provided examples of the human interventions:

·        one Lot has a residential house and curtilage.

·        two Lots were historically cleared for farming and have substantial regrowth of vegetation and you have advised us that there are no improvements for the purposes of item 4 of the table in subsection 75-10(3) of the GST Act.

·        one Lot has a building.

The above is not an exhaustive list of all of the human interventions on the Land. The commercial rationale underpinning the Subject Transaction (described below) is to supply the Land to a developer (the Purchaser) to develop residential premises, effectively creating a new suburb upon the Land. During the advertising and marketing campaign for the Land:

·        The Land was advertised / promoted to specific developers as part of an 'expression of interest' / competitive tender process.

·        The Land was advertised / promoted to specific developers on the basis that a single buyer would purchase the Land.

·        It was not contemplated that the Lots could not be sold individually or separately from each other.

Subject Transaction

The sale of Property A to the Purchaser has occurred.

The sale of Property B to the Purchaser is expected to occur.

You have provided an aerial photograph depicting the Lots.

Specifically, we note that, based on the aerial photograph, one Lot in Property B appears to be separated from the remainder of the Property B Lots by a train line. However, this Lot is connected to another Property B Lot via a private access road, which is part of the former Lot, that leads through a tunnel under the rail line. There is no other reason why this Lot is separated from the remaining Property B Lots.

Relevant legislative provisions

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

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

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

Summary

Due to the interrelated nature of the questions 1 to 4, the below reasoning applies to all questions contained in the notice of private ruling.

Item 4 of the table contained in subsection 75-10(3) (item 4) requires identification of the land that is the subject matter of the supply. For item 4 purposes, the supplies of Property A and Property B should each be viewed as a single supply of land as the subject matters of the supplies are the totalities of each respective parcel of Land (being Property A and Property B).

While you have submitted that some of the human interventions on the Lots would not be improvements for the purposes of the GST Act, in order to demonstrate that item 4 is of real application to these transactions, you have not asked us to rule on whether there are any improvements on the Land as at 1 July 2000. We have not provided a ruling in this regard.

Detailed reasoning

Applying the margin scheme

Division 75 allows you to use a margin scheme to bring within the GST system your taxable supplies of freehold interests in land. If a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.

If subsection 75-10(3) applies to your supply, the margin for the supply is the amount by which the consideration for the supply exceeds a particular valuation of the interest.

Item 4 applies where the supplier is the Commonwealth, a State or a Territory, and the interest has been held since before 1 July 2000, and there were no improvements on the land or premises in question as at 1 July 2000. The relevant valuation under item 4, in determining the margin, is the valuation of the land on the day on which the taxable supply takes place.

In accordance with Goods and Services Tax Determination GSTD 2006/4 Goods and services tax: government entities and the margin scheme - does item 4 in the table in subsection 75-10(3) apply if real property was vested for no consideration in a government department or agency on or after 1 July 2000 but was held by another department or agency of the Commonwealth or the same State or Territory since before 1 July 2000? we consider that the Land has been held by the State since before 1 July 2000.

While you have submitted that some of the Lots do not have any improvements on the land, in order to demonstrate that item 4 is of real application to you, you have not asked us to rule on whether there are any improvements on the Land as at 1 July 2000.

To summarise questions 1 to 4, you have asked if Property A and Property B are each a single supply of land, or if each Lot (comprising of Property A and Property B) is a single supply of land, for determining item 4 application.

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 provides guidance for identifying the land supplied in paragraphs 47A - 47J.

As stated in paragraphs 47A - 47C, subsection 75-10(3) requires identification of the land that is the subject matter of the supply:

47A. Sections 38-445 and 38-450 require identification of the 'supply... of land'. Similarly, subsection 75-10(3) requires identification of 'the land or premises in question'. Each section requires identification of the land that is the subject matter of the supply. The total fact situation must be considered, although a written contract is a logical starting point when identifying the land that is the subject matter of the supply.

47B. The subject matter of the supply is identified as a matter of substance not form. It is not determined simply on titles to the land. That is, separately titled lots are not necessarily separate supplies of land for the purposes of sections 38-445, 38-450 or subsection 75-10(3). Nor is the subject matter of the supply determined simply on whether there is a single contract or multiple contracts.

47C. Ordinarily, the subject matter of the supply will be the totality of the land, even if it is under more than one title. This will be the case if that land:

·        is contiguous

·        has physical attributes that identify it as a single piece of land

·        is supplied to a single recipient, and

·        is supplied under a single arrangement.

There will be separate supplies where land on one or more titles is objectively separate from the rest of the land by reference to physical attributes, historical and current usage, prior dealings, commercial context and legal status.

You have submitted that each Property A and Property B should not be considered to be single supplies of land. In particular:

·        neither Property A nor Property B have physical attributes that identify each as a single piece of land

·        the Lots comprising the Land can be supplied independently of one another without compromising the subject matter or identity of each independent supply

·        the subject of the conveyances to the Purchaser are the individual Lots

·        there are no features, no overarching business or enterprise, or any other overriding use of the Land that would cause either Property A or Property B to be identified as a single piece of land.

However, relevant to the principles outlined in paragraphs 47B and 47C of GSTR 2006/6:

·        Property A and Property B are each supplied under a single arrangement, for a single price (that is, the price is not determined on a Lot-by-Lot basis) and to the same recipient.

·        The Land was advertised / promoted to specific developers on the basis that a single purchaser would buy the Land, with the intent of the purchaser using the whole of the land to develop a new suburb.

·        All of the Lots in Property A are contiguous.

·        All of the Lots in Property B are also contiguous, with one Lot linked to another Lot via a private access road that leads through a tunnel under the rail line.

·        You have advised that a number of the Lots contained in Property A and Property B were previously used for the same purpose, being farming activities, prior to you becoming the owner of the Land.

·        Other than the separate land titles, which is not determinative, there is an absence of features that indicate that the land are separate parcels of land.

Considering the total fact situation, we consider that the supplies of Property A and Property B should each be viewed as a single supply of land as the subject matters of the supplies are the totalities of each respective parcel of Land (being Property A and Property B).

Your circumstances are to be contrasted with Example 2 of GSTR 2006/6, where the subdivided lots retained their own identity and were dealt with by the supplier having regard to each individual title:

Example 2 - supply of land comprising separately titled lots as multiple supplies

47I. A local council has land that is surplus to its needs, which it has held since before 1 July 2000. It subdivides the land into ten lots for sale for residential use. The subdivided lots are marketed as individual lots with a sale price for each lot. A local builder acquires four adjacent lots. A single contract for sale is drawn up in which the lots are listed individually with a separate price shown for each lot.

47J. In this instance, there are four separate supplies of land effected by way of a single contract. Although the land is contiguous and its historical usage was as a single piece of land, the commercial context and the legal status of the land involves the lots being offered for sale as subdivided individual lots. Each lot created from the subdivision has retained its own identity and has been dealt with by the supplier having regard to its individual title. The lots are being supplied on a single contract because it is commercially expedient to do so. Each individual lot is a separate supply of land for the purpose of determining under subsection 75-10(3) if there were any improvements on the land as at 1 July 2000.

Consequently, the supplies of Property A and Property B should each be considered to be single supplies for Item 4 purposes.