Private ruling: GST and the supply of real property
Date of advice: 28 January 2016
Published: March 2016

Ruling: Q1: Was your supply of the Land, to Department A be a GST-free supply of land on which there were no improvements as at Settlement Date for the purposes of paragraph 38-445(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You and Department A are both currently registered for GST. You were established in YYYY by the Relevant Act. On the same day you became responsible for the functions previously performed by your predecessor. On ddmmyyyy, you and the Department entered into a Contract of Sale for the sale of the Land (Land Contract). Settlement took place on ddmmyyyy. The Land has been in the possession of you or your predecessors since yyyy. The Land is partially covered with native bush shrub and other vegetation. Some human interventions have taken place on (or in the vicinity of) the Relevant Land, including: • clearing • fencing • construction of production facilities. The facilities were fully and finally decommissioned and removed from the Land prior to its supply. You provided various documents in support of your private ruling application. Clearing Photos of the Land taken around mmyyyy (pre settlement) show natural regrowth and wild bush, with no evidence of clearing. Photos of the Land taken around mmyyyy (post settlement) show evidence of recent clearing There are no photos of the Land available that show the status of any clearing at the date of Settlement. However, you have stated that: (a) the photos of the Land taken around mmyyyy (pre settlement) are representative of the vegetation of the Land as at Settlement Date. (b) no clearing occurred between mmyyyy (pre settlement) and Settlement Date Fencing The original boundary fence was erected in the yyyy as part of the facility. The facility ceased operation some time ago, and the site was left derelict. The fence was left to deteriorate, and by yyyy, large sections of the fence were cut and/or removed and most of the barbed wire top was missing. The deterioration of the fence was compounded by the fact the site is next to other facilities, and intruders would regularly cut the fence to access the site. Given that the site was non-operational (and the majority of infrastructure removed), the security of site was deemed a very low priority. Photos of the Land taken on ddmmyyyy (pre settlement) show that the status of the fencing had deteriorated as at that date. Photos of the Land taken around mmyyyy (post settlement) show that the fence had further deteriorated, and been removed entirely in parts. The fence no longer surrounds the Land, and is only present on parts of the boundary. There are no photos of the Land available that show the status of the fencing at Settlement Date. However, you have stated that the photos of the Land taken around mmyyyy (post settlement) are representative of the status and quality of the fencing on the Land as at Settlement Date.

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

Reasons for decision: Summary: Note: 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 For the Land to be GST-free under section 38-445, the following requirements must be satisfied: (a) a freehold interest in land (or long term lease) must be supplied by the Commonwealth, a State or Territory (b) the land must not have been previously the subject of a supply that was GST-free under section 38-445 after 1 July 2000, and (c) there must be no improvements on the land at the time the supply is made. | Detailed Reasoning - Supply of freehold interest: Pursuant to the Land Contract, you sold the whole of the Land to Department A. | Detailed Reasoning - State: It is accepted that you are a 'State' for the purposes of section 38-445. | Detailed Reasoning - The Land has not previously been the subject of a supply that was GST-free under section 38-445 after 1 July 2000: You or a predecessor has been in the possession of the Land since mmyyyy (prior to 1 July 2000). On ddmmyyyy, Reserve No xyxy was converted to freehold title pursuant to instrument entered into ddmmyyyy. When the reserve was converted to freehold title, you were recorded on the Certificate of Title as the registered proprietor. Accordingly, there has not been a previous GST-free supply of the Land since 1 July 2000 for the purposes of subsection 38-445(2). | Detailed Reasoning - There were no improvements on the Land at the time of supply: Paragraph 22 of Goods and Services Tax Ruling 2006/6: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6) 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. Paragraph 22 of GSTR 2006/6 further explains 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 explains 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 at the relevant date. Whether the net value of the human interventions enhance the overall value of the land is irrelevant. However, as explained at paragraph 28 of GSTR 2006/6, where human interventions that were once improvements on the land have deteriorated over time or have contributed to land degradation, those interventions may no longer enhance the value of the land and may therefore no longer be improvements. Further, as stated at paragraph 30 of GSTR 2006/6, in some situations improvements may have been on the land but no longer exist as improvements on the relevant date (i.e. date of sale for the purposes of section 38-445). Human interventions relevant to your Land As explained in paragraph 23 of GSTR 2006/6, if there are any human interventions that enhance the value of the land, then there are improvements on the land. Any human intervention is considered to mean any single human intervention. We are not looking at the net value of human interventions. The following possible human interventions have been identified on the Land: Clearing Photos of the Land taken around mmyyyy (pre settlement) show natural regrowth and wild bush, with no evidence of clearing. Photos of the Land taken around mmyyyy (post settlement) show evidence of recent clearing. There are no photos of the Land available that show the status of any clearing at the date of Settlement. However, you have stated that: (a) the photos of the Land taken around mmyyyy (pre settlement) are representative of the vegetation of the Land as at Settlement Date. (b) no clearing occurred between mmyyyy (pre settlement) and Settlement Date Although the clearing may have once enhanced the value of the Land (e.g. immediately after the clearing was completed) and thereby constituted an improvement to the Land, such improvements had, by the Settlement Date, been exhausted (as paragraph 28 of GSTR 2006/6 contemplates). Accordingly, the clearing of the native vegetation did not constitute an improvement to the Land as at the Settlement Date. Fencing The original boundary fence was erected in the yyyy as part of the facility. The facility ceased operation some time ago, and the site was left derelict. The fence was left to deteriorate, and by yyyy, large sections of the fence were cut and/or removed and most of the barbed wire top was missing. The deterioration of the fence was compounded by the fact the site is next to other facilities, and intruders would regularly cut the fence to access the site. Given that the site was non-operational (and the majority of infrastructure removed), the security of site was deemed a very low priority. Photos of the Land taken on ddmmyyyy (pre settlement) show that the status of the fencing had deteriorated as at that date. Photos of the Land taken around mmyyyy (post settlement) show that the fence had further deteriorated, and been removed entirely in parts. The fence no longer surrounds the Land, and is only present on parts of the boundary. There are no photos of the Land available that show the status of the fencing at Settlement Date. However, you have stated that the photos of the Land taken around mmyyyy (post settlement) are representative of the status and quality of the fencing on the Land as at Settlement Date. Although there have been several human interventions that were once improvements, as at Settlement Date, these had deteriorated over time such that they no longer enhanced the value of the Land. Accordingly, your supply of the Land to Department A was a GST-free supply of land on which there were no improvements as at Settlement Date for the purposes of paragraph 38-445(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).