Private ruling: Refund of GST miscalculated on supplies of unimproved land
Published: October 2014

Ruling: Q1: Are you entitled to a refund of overpaid GST of $$ related to sales of various items mistakenly treated as fully taxable instead of GST-free under section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. However, you are entitled to a refund of overpaid GST of $.

Relevant facts and circumstances: You are an entity registered for goods and services tax (GST). You owned various real estate assets which were sold. The real estate assets sold are comprised of X items referred to as the Ruling Properties. You submit that each of the Ruling Properties was unimproved. You bought the Ruling Properties after 1 July 2000 as fully taxable purchases. The sales of the Ruling Properties have been sold pursuant to standard land contracts. Copies of sample contracts for sale are attached to your request for a private binding ruling as Annexure B . You submit that these samples are representative of contracts for sale for the Ruling Properties. You believe that none of the purchasers of the Ruling Properties were registered or were required to be registered for GST at the time of purchase. All of the contracts relevantly provide that the purchase price is the price stated on the front page of the contract. You submit that: • Each of the contracts for sale for the Ruling Properties provides that the application of GST is to be outlined in the Special Conditions section of the contract or in an attached GST Annexure. • None of the contracts deal with the application of GST in either the Special Conditions or the attached GST Annexures, the result of which means that the price on the cover of the contract is the GST exclusive price. • 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 sales price. You contend that: • The price at which each of the Ruling Properties was sold was the then current market value determined by you as the price that a willing but not anxious vendor and purchaser would enter an agreement to buy the land. • The price was set by you 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 land at the going market rate. • In arriving at the price at which the Ruling Properties were advertised, you did not start with a particular price in mind and then add GST to the prices obtained for the sale of each of the Properties. The prices are even amounts. • The GST paid by you on each of the Ruling Properties sold was a cost absorbed by you in the same way that costs of undertaking subdivision work are absorbed 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 your matter and was absorbed by you and was not passed on to the purchaser. You have kept extensive records of the land sales made by you to which this ruling relates. Annexure A, attached to your request for a private binding ruling, contains a table of the land sales made which are the subject of this ruling application. You contend that: • none of the Ruling Properties have been improved at the date of settlement • there have been no acts of human intervention on any of the Ruling Properties that enhanced their respective values at the dates of settlement. You have provided copies of the settlement documents that show the prices settled for are the same as the purchase prices agreed to. You have confirmed that no tax invoices were issued in relation to the supplies. Notification and amount of refund sought You notified the Commissioner in accordance with subsection 105-55 of the Taxation Administration Act 1953 of your entitlement to a refund.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-N Section 38-445 | Division 75 | Taxation Administration Act 1953 Section 105-65

Reasons for decision: Summary: Unless otherwise stated, all legislative references are legislative references to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Question 1: 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 49 8 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 supplied photographs of the items in question. We need to consider whether each item was unimproved land as at the time of the supply. Each of the items has been considered and our conclusions on each are as follows: | Detailed Reasoning - ATO conclusion: 1 YES Aerial photo shows a predominantly wooded allotment with significant undergrowth present. There is no significant clearing apparent. Street level photo confirms this state. We accept that the land is in its natural state at the time the photo was taken. The land is unimproved. 2 NO Aerial photo shows a mainly and significantly cleared area with some trees and dry ground. Native scrub and bushes have been extensively cleared. The street view photo shows cleared and maintained land with signage, some trees and pathway. The land appears to be periodically maintained as part of the street scape and is being prevented from returning to its natural state by this periodical maintenance. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 3 NO Aerial photo shows a mainly cleared area with some trees, grass and exposed ground. Native scrub and bushes have been extensively cleared. The land is mowed and appears to have been periodically maintained as part of the streetscape. Street level photo shows some grass and scrub regrowth. However, the land appears to be prevented from returning to its natural state by being periodically maintained. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 4 YES Aerial photo shows a heavily treed and wooded allotment with significant undergrowth present. Street level photo confirms this state. There is no significant clearing apparent. We accept that the land is in its natural state at the time the photo was taken. The land is unimproved. 5 NO Aerial photo shows a mainly cleared area with grass and some trees. Street level photo confirms this but with dry stubble ground. The land appears cleared and maintained as part of the streetscape. Native scrub and bushes have been extensively cleared. The land is being prevented from returning to its natural state by being maintained. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 6 NO Aerial photo shows a cleared area with some grass and a few trees. Street level photo confirms this appearance. Native scrub and bushes have been extensively cleared. The land appears to be maintained and has not returned to its natural state. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 7 NO Aerial photo shows a dry cleared area with a few trees. Native scrub and bushes have been extensively cleared. The land appears to be maintained and has not returned to its natural state. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply.. The land is improved. 8 NO Aerial photo shows a dry cleared area with a tree or two. Native scrub and bushes have been extensively cleared. The land appears to be maintained. The street view shows grass regrowth however, the land has not returned to its natural state. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 9 NO Aerial photo shows a predominantly cleared area with a few trees. Native scrub and bushes have been extensively cleared. The street level photo confirms this. The land does not appear to have returned to its natural state. It appears highly likely that the improvements of clearing and maintenance would not be exhausted at the time of supply. The land is improved. 10 NO Aerial photo shows a predominantly cleared and grassed area with one tree. Native scrub and bushes have been extensively cleared. The street level photo confirms this and shows that some grass has overgrown but not over the whole allotment. The whole allotment is still predominantly cleared. It appears highly likely that the improvements of clearing would not be exhausted at the time of supply. The land is improved. 11 NO The street level photo shows a cleared and neatly maintained allotment. Native scrub and bushes have been extensively cleared. This clearing and maintained state is an improvement. Based on the circumstances of other allotments, there is a high probability that this allotment has not returned to its natural state prior to settlement and that the improvement has not been exhausted. The land is improved. 12 Further evidence is required. Aerial photo does not indicate whether there have been any improvements on the land. The land in question appears to be a long narrow path corridor or footpath reserve. It is not clear from the photo whether the land is in its natural state, or has been partly cleared or has had any pathways built on it. We cannot form a view without further evidence. 13 NO Aerial photo shows a predominantly cleared area with a few trees. Native scrub and bushes have been extensively cleared. The street level photo shows a cleared and neatly maintained allotment with a few trees. This cleared and maintained state is an improvement and the allotment was sold in this improved state. The land is improved. 14 NO Aerial photo shows a predominantly cleared dry area. Native scrub and bushes have been extensively cleared. The street level photo confirms this and shows that some low level grass has grown. The whole allotment is still predominantly cleared. It appears that regular maintenance may be undertaken to maintain the clearing. There is a high probability that this allotment has not returned to its natural state prior to settlement and that the improvement of clearing has not been exhausted. The land is improved. 15 NO Aerial photo shows an allotment with an area half cleared and with trees. The direction of the street level photo shows some clearing and many trees. Native scrub and bushes have mainly been cleared. Even though this allotment is half cleared this clearing is an improvement and appears to have been maintained in this condition as part of the streetscape. There is a high probability that this clearing has not been exhausted nor has the allotment returned to its natural state prior to settlement. The land is improved. 16 NO Aerial photo shows a predominantly cleared and neat allotment with some trees along one side and a small group of tees on the other side more so towards the back. Native scrub and bushes have been extensively cleared. The street level photo confirms this but includes a tree front and centre of the allotment. This clearing and apparent maintenance is an improvement. There is a high probability that this clearing has not been exhausted nor has the allotment returned to its natural state prior to settlement. The land is improved. 17 NO Aerial photo shows a predominantly cleared and neat allotment with some trees scattered about. Native scrub and bushes have been extensively cleared. This clearing and apparent maintenance is an improvement. There is a high probability that this clearing has not been exhausted nor has the allotment returned to its natural state prior to settlement. The land is improved. 18 NO Aerial photo shows a predominantly cleared allotment with some trees grouped together. It also shows some small stubble or growth in the centre of the allotment but this is not very decipherable. Native scrub and bushes have been significantly cleared. This predominant clearing is an improvement. There is a high probability that this clearing has not been exhausted nor has the allotment returned to its natural state prior to settlement. The land is improved. Consequently, we conclude that the items, other than items 1 & 4 is land on which there are improvements as at the time of supply. As we have concluded that items 1 & 4 are each land on which there are no improvements as at the time of supply. From the evidence provided, we cannot conclude the status of item 12. The Margin Scheme We have considered whether the margin scheme can be applied to the items that we have concluded as land on which there are improvements as at the time of supply. Subsections 75-5(2) and 75-5(3) provide that the margin scheme does not apply if the entire interest was acquired through a taxable supply on which the GST was worked out without applying the margin scheme. You advised that you bought the items after 1 July 2000 as fully taxable purchases. As the Ruling Properties were acquired by you in a supply on which the GST was worked out without applying the margin scheme, subsections 75-5(2) and 75-5(3) prevent the margin scheme from being applied to your supply of the ruling properties. Refund of GST As you cannot apply the margin scheme to the supply of the items, normal rules apply to those supplies. Consequently GST of 1/11 th of the price is payable on those supplies. As you have stated that you calculated and paid the GST at 1/11 th of the price of those supplies, there has been no miscalculation of GST and therefore no overpayment of GST. Therefore, no refund is due to the extent of the supplies of improved land. The extent of supplies of unimproved land, we accept that items 1 & 4 are supplies of unimproved land. As you have overpaid GST on these supplies you are entitled to a refund of GST provided you have not passed on this GST. Section 105-65 of the Taxation Administration Act 1953 (TAA) provides a restriction on the payment of GST refunds where the Commissioner need not give you a refund in certain circumstances. You have stated that the unimproved lots were sold without GST included in the price because of various facts. A copy of the settlement documentation for items 1 & 4 show that the final prices are the same as the prices agreed to upon execution of the contracts, thus no additional amount of consideration was provided. The documents do not mention or include GST other than what is contained in each contract, neither of which include, provide for nor mention GST. Therefore we accept that the purchasers did not bear the burden of GST in the price of the supplies of unimproved land. As we accept that GST has not been passed on to the purchasers the Commissioner will exercise his discretion under section 105-65 of the TAA to allow you a refund of GST overpaid on the unimproved lots.