Private ruling: GST and land improvement, margin scheme
Date of advice: 18 March 2020
Published: April 2020
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Is each of the land lots listed in the Survey Plan (collectively referred to as the 'Properties') in this ruling 'land on which there are no improvements' as at 1 July 2000? | A1: Yes. Based on the aerial photograph taken and the confirmed facts provided, we consider that the land lots are land on which there are no improvements as at 1 July 2000. | Q2: If the answer to question 1 is yes, if the supplier sells each of these lots using the margin scheme is it entitled to value each lot on the day on which the taxable supply takes place, in accordance with item 4 of the table to sub section 75-10(3) of the GST Act? | A2: Yes.

Relevant facts and circumstances: · The supplier is a local government authority and owns substantial parcels of land, much of which it was owned since before 1 July 2000. · The supplier owned parcels of land which were subdivided and portions have been sold as lots since 1 July 2000 and more lots are about to be sold off. · For the purposes of this ruling response these subdivided lots are collectively referred to herein as the 'Properties'. · The sales of the subject lots are pursuant to standard Contracts for Houses and Residential Land. Page 3 of the sample Contract for Houses and Residential Land, under the heading "Purchase Price", states that "Unless otherwise specified in this contract, the Purchase Price includes any GST payable on the supply of the Property to the Buyer. · The special condition in the contract of sale is an agreement in writing that the supplier and the buyers agree to adopt the margin scheme. · The GST payable by the supplier on each lot is a cost absorbed by the supplier in the same way that costs of undertaking subdivision work including the construction of roads, drainage, sewage and other infrastructure. · The photograph that was provided as part of this ruling request shows the parcel of land that was subdivided into the lots that make up the Properties. It is submitted that at 1 July 2000 these parcels of land were in the same condition as indicated in the photograph. · It is submitted for the Commissioner's consideration that the land from which the lots were subdivided was unimproved and in a natural state being devoid of built structures and comprised of predominantly flat land with native grasses, shrubs and trees. · The Properties were not levelled or cleared at 1 July 2000. · Services such as water, sewer or electricity were not connected to each of the lots.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 - Division 38 | A New Tax System (Goods and Services Tax) Act 1999 - Subsection 75-10(2) and (3) | A New Tax System (Goods and Services Tax) Act 1999 - Section 75-11

Reasons for decision: Summary: Item 4 in the table in subsection 75-10(3) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides where the supplier is the Commonwealth, a State or 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 for the purpose of applying the margin scheme must reflect the value of the real property on the day on which the taxable supply takes place. We accept the submission made by the supplier as part of their ruling request, being that the supplier is a 'State" for the purposes of Division 75 of the GST Act. The supplier wishes to apply the margin scheme for the sale of subdivided lots of land. The supplier wishes to use valuation as per Item 4 in the table in subsection 75-10(3) of the GST Act to calculate the margin for the sale of the lots. It should be determined whether the lots that are the subject of this ruling application were land on where there was improvement as at 1 July 2000. According to paragraph 21 of Goods and Services Tax Ruling; GSTR 2006/6: improvements on the land for the purposes of Subdivision 38-N and Division 75, land that exhibits the following characteristics is concerned to be land on where there is improvement: · there must have been some human intervention on the land; · 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 the following as examples of what is considered to be human intervention: · houses, town-houses, stratum units, separate garages, sheds and other out-buildings; · commercial and industrial premises; · farm houses, farm outbuildings, internal fencing, stockyards, wells and bores, excavated tanks, dams, surface drains, culverts, bridges, sown pasture, formed internal roads, and irrigation layouts; · 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; · building up of soil fertility; · removal of animal pests, rabbit burrows etc; · removal of rocks, stones or soil; and filling of land. The supplier submits that the photograph is strong evidence that the land was unimproved land in its natural state at 1 July 2000. We accept that the aerial photograph is the representative of the condition of the land at 1 July 2000. The supplier claims that the dirt areas could have been caused by native fauna and there is no evidence to suggest that they were caused by human intervention. Furthermore, these dirt areas appear to be consistent with paragraph 27 of GSTR 2006/6 a fire break does not represent an improvement on the land. Based on the facts confirmed by the supplier and the aerial photograph provided to support the facts, we agree that the lots of land are land on which there are no improvements as at 1 July 2000. | Detailed Reasoning - Margin scheme: According to subsection 75-10(2) of the GST Act, 'subject to subsection (3) and section 75-11, the margin scheme for the supply is the amount by which the consideration for the supply exceed the valuation of the interest in the land. As explained above, subsection 75-10(3) of the GST Act provides a table which sets out 'when valuations may be used' and the 'days when valuations are to be made'. Item 4 in the table in subsection 75-10(3) of the GST Act applies in cases where 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 improvement on the land or premises in question as at 1 July 2000. On the basis that there have been no 'works' such as grading, filling or other activities (that would not be visible in aerial photography) undertaken on the land that would have improved the value of the land, we accept that these lots are land held by the supplier before 1 July 2000 and there were no improvements on the land as at 1July 2000. Therefore, the supplier will be entitled to use the margin scheme under item 4 in the table in subsection 75-10(3) of the GST Act.