Private ruling: GST and the supply of property
Published: September 2013

Ruling: Q1: Is the supply of Property A a GST-free supply of real property under section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No | Q2: Is the supply of Property B a GST-free supply of real property under section 38-445 of the GST Act? | A2: No | Q3: Is the supply of Property C a GST-free supply of real property under section 38-445 of the GST Act? | A3: No

Relevant facts and circumstances: · You are selling properties A, B and C to Entity X. · You intend to sell the land as GST-free supplies of real property pursuant to subsection 38-445(1) of the GST Act. · The land was held by you before 1 July 2000. · There have been no sales or transfers of the land since 1 July 2000. · There are vandalised and neglected buildings on the land. · A professional valuer has provided assessments which conclude that the land is 'unimproved' for the purposes of subsection 38-445(1) of the GST Act. In summary, they: o Refers to: § Goods and Services Tax Ruling GSTR 2006/6 GST: improvements on the land for the purposes of Subdivision 38-N and Division 75 in forming his view; § Other documents; o States they have not made his assessment through reference to any intended use of the land by the supplier or the recipient; o Recognises there was human intervention on the land over a long period of time but concludes that this does not enhance and actually decreased the value of the land at the relevant date; o Concludes the land is free of any improvements which 'increase the value of the land' given that the buildings have been vandalised and are now obsolete, meaning that they are exhausted. · Further information provided indicates: o The land has asbestos contamination; o Potential contamination from previous activities on the land, including pesticide and herbicide contamination; o Stormwater drains exist at numerous central and peripheral locations; o Evidence of further underground services including water and gas mains, electricity cables and sewage drainage. Further information has been provided as follows: The valuer: · Confirms that they have analysed each intervention of which they are aware on the land to determine whether they have enhanced the value of the land and not simply taken a holistic view. They have arrived at an assessment in each instance that none of these interventions enhance the value of the land; · Considers that on parts of the land there is no evidence of clearing and levelling and it cannot be assumed that the present state is as a result of clearing and levelling; · Considers that other areas are in a state of disrepair which means they cannot be utilised without further cost therefore they do not enhance the value of the land; · Concludes that existing services and their connections to existing structures are in a dilapidated state and therefore do not enhance the value of the land; · Advises that contamination from former use permeates the land with the effect that human interventions which may have occurred previously no longer enhance the value of the land.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 38-445

Reasons for decision: Detailed Reasoning - Question 1: Is the supply of Property A a GST-free supply of real property under section 38-445 of the GST Act? | Detailed Reasoning - Question 2: Is the supply of the Property B a GST-free supply of real property under section 38-445 of the GST Act? | Detailed Reasoning - Question 3: Is the supply of Property C a GST-free supply of real property under section 38-445 of the GST Act? | Detailed Reasoning - Improvements on the land: Subsection 38-445(1) of the GST Act is relevant to your circumstances. Paragraph 38-445(1)(a) of the GST Act provides that a supply by the Commonwealth, a State or a Territory of land on which there are no improvements is GST-free if the supply is of a freehold interest in the land. However, the supply is not GST-free if, since 1 July 2000, the land has already been the subject of a supply that is GST-free under this section. We accept you are a state as described in paragraphs 6 and 7 of in Goods and Services Tax Ruling GSTR 2006/5: meaning of 'Commonwealth, a State or a Territory'. For the purposes of section 38-445 of the GST Act, the supply of each of the properties is a supply of a freehold interest in land by a State. We accept that you held all the land in question prior to 1 July 2000 and it has not previously been supplied under section 38-445 of the GST Act. It remains to be determined whether this is 'land on which there are no improvements'. The Commissioner's view in respect of land on which there are no improvements is contained in Goods and Services Tax Ruling GSTR 2006/6 GST: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6). Unimproved land is land in its natural state. Therefore to determine whether there is 'land on which there are no improvements' the land is compared with land in its natural state (Paragraph 20 of GSTR 2006/6). Paragraph 22 of GSTR 2006/6 provides 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 25 of GSTR 2006/6 provides examples of human interventions which may enhance the value of land; while paragraph 37 of GSTR 2006/6 notes that the term 'improvements on the land' is not limited to visible structural improvements. It includes improvements below the surface of the land such as underground drainage or other facilities. From the information provided, each of these properties has had human interventions on them over time including: · clearing; · excavation, grading and levelling of land; · construction of a variety of structures; · the preparation for (including grading and levelling of land) and formation of driveways, roads, parking areas, pathways and other areas; · fencing; · drainage including sewerage and stormwater; · provision of utilities e.g electricity cables, water mains. We consider that the land is no longer in its natural state. Each of these activities is a human intervention physically located on the land and has the effect of enhancing the value of the land at the time it was created or added. There have therefore been improvements on the land. We will consider whether these interventions enhance the value of the land at the relevant date, which is the date of supply for the purposes of subsection 38-445(1) of the GST Act. | Detailed Reasoning - Improvements on the land at the relevant date: You assert that even if there were improvements on the land which increased their value, these improvements are now exhausted. The buildings are derelict and unusable and can no longer be considered improvements on the land. You have provided opinions from a valuer that conclude: · The buildings and current fencing are in a state of disrepair and their value is exhausted; the land is free from any improvements which enhance the value of the land and the land is therefore unimproved; · Other areas are in disrepair; · There is no evidence of human intervention (levelling and/or clearing) on some areas and therefore it cannot be inferred that their current state is as a result of human intervention; · Existing services (such as electrical cabling) have deteriorated such that they are unsuitable for any use; · Any enhancement of value to the sites through human interventions has deteriorated due to contamination throughout the sites. GSTR 2006/6 indicates at paragraphs 23 and 32 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. 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 of the land. In some cases, human interventions which were once improvements may have deteriorated to such an extent that they no longer enhance the value of the land and are not improvements (Paragraph 28 of GSTR 2006/6). While a building that is uninhabitable, derelict and condemned may no longer enhance the value of the land, if the building is located on land which is cleared and this clearing has not deteriorated there are improvements on the land. The clearing still enhances the value of the land (Paragraph 33 of GSTR 2006/6). Intended use by the supplier or the recipient should not determine whether a human intervention enhances the value of the land. For example, real property with a building on it that is not condemned enhances the value of the land even though the recipient may intend to demolish the building (Paragraph 35 of GSTR 2006/6). While it may be contended that the buildings are in a state of disrepair (and notwithstanding that there may be an amount of contamination) the buildings are not in such a state as to have been condemned. It is therefore arguable that these should still be considered improvements. However, we consider that there are other improvements on the land and so will not address this directly. It is our view that the following human interventions continue to enhance the value of the land for each of the properties: · clearing and/or levelling of land undertaken in preparation for: o construction of buildings; o formation of driveways, parking areas and pathways; · development and maintenance of other areas; · underground services including storm water drainage, electricity, sewerage drainage and water mains. Notwithstanding that the driveways, parking areas and pathways may be in a state of disrepair we consider that they are still improvements on the land. Even if it could be said that the driveways etc are no longer improvements it is our view that the land is not unimproved land as the human intervention of clearing and/or levelling the land was necessary in order to form these areas and therefore enhances the value of the land. In addition, although the valuer has stated that the existing services such as electrical cabling, sewerage, drainage and water and gas mains located on the land are in need of upgrading, repair or re-routing in order to be fit for any use, they are still present on the land and available to the properties and therefore enhance the value of the land. In conclusion, Properties A, B and C have each had human interventions which enhance the value of the land at the relevant date. As such the supplies of each of these properties do not meet the requirements of subsection 38-445(1) of the GST Act as being a supply of land on which there are no improvements.