Private ruling: GST and improvements on land
Published: May 2013

Ruling: Q1: Were certain parts of the Land "unimproved land" as at 1 July 2000 for the purposes 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)? | A1: Yes | Q2: Are you entitled to use an approved valuation of the Land on the day on which the taxable supply takes place, in accordance with item 4 of the table in subsection 75-10(3) of the GST Act, in calculating goods and services tax (GST) payable under the margin scheme? | A2: Yes


Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Subdivision 38-N | Section 38-445 | Division 75 | Section 75-5 | Section 75-10 | Subsection 75-10(3)

Reasons for decision: Summary: The Land is unimproved land for the purposes of the GST Act, You are therefore entitled to use an approved valuation of the Land on the day on which the taxable supply takes place, in accordance with item 4 of the table in subsection 75-10(3) of the GST Act. | Detailed Reasoning - Detailed reasoning: The ATO view on improvements on land is explained 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). This explains that unimproved land is taken to be land in its natural state. To establish whether there are improvements on the land the land is compared with land in its natural state (paragraph 20 GSTR 2006/6). GSTR 2006/6 discusses the meaning of the phrase 'improvements on the land' in the context of the phrases 'improvements on the land' or 'no improvements on the land' in Subdivision 38-N and Division 75 of the GST Act. 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. | Detailed Reasoning - The meaning of 'improvements on the land': 21 The meaning of 'improvements' in the context of land tax has been held by the High Court in Morrison v. Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503 to be: Any operation of man on land which has the effect of enhancing its value comes within the definition of 'improvement'. 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. 23. 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. The table in paragraph 34 of GSTR 2006/6 specifies the relevant day for ascertaining whether there are improvements on the land. For item 4 of the table in subsection 75-10(3) the relevant day for ascertaining whether there are improvement on the land is 1 July 2000. Paragraphs 48 to 51 under the sub-heading of Subdivided land and item 4 of the table in subsection 75-10(3) of GSTR 2006/6 also state: 48. In this part of the Ruling, the Commissioner considers whether a supply of a particular subdivided lot is ineligible for consideration under item 4 of subsection 75-10(3) because the larger area (englobo land) from which it was subdivided had improvements on it at 1 July 2000, even though the physical area of the particular subdivided lot had no improvements. 49. The issue is whether it is necessary to consider whether any part of the englobo land had improvements on it or whether regard should be had only to that part of the englobo land that forms the subdivided lot. 50. It is the Commissioner's view that the words 'land or premises in question' in item 4 qualify the application of the improvements test to land that is supplied and not the larger area from which it is subdivided. 51. These words can be contrasted with the expression 'interest, unit or lease' which are used elsewhere in the item to refer to the legal interest being supplied under the margin scheme. This distinction supports the view that it is the physical land rather than the legal interest that is considered when determining whether there were improvements on the land at the relevant date.6 Therefore in your case we need to consider the individual Lots as opposed to the 'whole of the Land'. Paragraph 25 of GSTR 2006/6 provides examples of human interventions that may enhance the value of land. In your case we consider that the temporary sediment pond, the contractor's site compound, the stockpiles of soil and rock, the former golf course and the former tip are all examples of a human intervention that may enhance the value of land. Other areas, the subject of this Ruling are predominantly reeds which form part of a wetland system and the majority of the Land which are predominantly grassy pastures which are partially covered with some shrubs and trees. In addition, paragraph 36 of GSTR 2006/6 states: 36. As the issue of whether there are improvements on the land is a question of fact, it may be prudent to engage a professional valuer to establish this. You have provided a valuation of the land that concludes that the human interventions to the land are not considered to enhance the value of the land. The valuation states that it specifically considers whether the human interventions are improvements within the meaning of the GST Act. The valuation advice also states that the valuers have been provided with a copy of GSTR 2006/6. The valuation provides that 'As at 1st July, 2000 it is my opinion that the identified lots in Stage x, Stage xx, Stage xxx and the harbour x of the xxxxxxxxx was "land on which there are no improvements", which provides that the land is unimproved land for the purpose of the GST Act. The area was considered to be in its natural state of grasslands.' Based on this valuation, and the guidance provided by GSTR 2006/6, we accept that in these circumstances the human interventions on the land are not improvements on the land, and therefore at the time of the supply the land will be unimproved land for the purposes of section 38-445 of the GST Act. The status of the lot as improved or unimproved land is determined at the time the lot is supplied. Until that time the Land may be either improved or unimproved land, depending on its physical state. From an administrative perspective, and for compliance purposes, the ATO accepts that local government bodies established under the LG Act are the 'State' or 'Territory' for the purposes of section 38-445 and section 75-10 of the GST Act. As the Commissioner accepts that you are a State then you can apply item 4 of Section 75-10(3)(b) of the GST Act . | Detailed Reasoning - Days when valuations are to be made: 4 The supplier is the Commonwealth, State, or Territory and it has held the freehold interest, stratum unit or long-term lease since before 1 July 2000 and there were no improvements on the land or premises as at 1 July 2000. The day on which the taxable supply takes place. This advice also relies on an assumption that you agree with the purchaser to apply the margin scheme, meeting all the requirements for doing so and that the Land subject to the ruling excludes the former golf course land and any land on which roads, man-made dams or houses were on the Land at 1 July 2000.

· You have an Australian Business Number (ABN) and are registered for GST. | · You have previously received a Private Ruling which stated that you are considered to be "a State" for the purpose of Item 4 of subsection 75-10(3) of the GST Act. | · You own or owned the freehold title to land, which now forms part of a larger parcel of land upon which the development is being undertaken, | · Another entity also owned land which forms part of the development area. Prior to the introduction of GST you entered into a deed of agreement with an entity to acquire the land. Between that time and 200X you acquired land from that entity on a piecemeal basis. | · The parts of the Land that are the subject of this private ruling application includes: | - Specified Lots of four of the stages, and | - The proposed precinct which are not part of any of the lots above. | · The following parts of the Land are excluded and are not subject of this private ruling application: | · You have obtained, and provided to us, a valuation report on the Land. The report concludes that the human interventions on the land noted below are not considered to enhance the value of the land and are therefore not improvements on or to the land for the purposes of the GST Act. | · The state and use of the Land is illustrated by way of an aerial photograph provided with the application as at late 2000 which shows areas on the map which are predominantly reeds which form part of a wetland system, and other areas (the majority of the Land) which are predominantly grassy pastures which are partially covered with some shrubs and trees. | · Early European settlers on the Land grazed livestock on the land. Indigenous Australians are also understood to have employed land management practices in the area. | · You have provided an aerial photograph of the land which was taken in 1999. | The Development: · The development involves the construction of a harbour, adjacent to the existing township. | · A mixed use precinct and medium density housing is planned to be developed in the harbour area. The remainder of the development consists of a number of stages of residential land subdivision. | · At 1 July 2000, a number of stages had either been built or were in the process of being developed. | · As at 1 July 2000, there was a golf course that was situated on the Land (hereafter known as the former golf course'. In 200Y, as part of the development agreement, a new golf course was built on land to the southwest of the township as a replacement to the former golf course which was part of the development. The golf club moved from the former golf course to the new golf course in 200Y. | · As at 1 July 2000, there was a former tip (hereafter known as the "former Tip" located within the harbour land, The former tip was operated by the local council from a point in time approximately mid 1950 and ceased operation as a tip site in the mid 19ZZs. This area was remediated with works completed in 200V to extract the deposited waste and the material was relocated to another part of the site where it was enclosed within a best practice modern waste cell. | · A number of roads and a farm house, and some water courses, also lay on the Land. | · This private ruling application only applies in respect of specified parts of the Land owned by you as at 1 July 2000. | · A particular stage predominantly sits across grassy and natural unimproved land. | · Temporary stockpiles of soil and rock also lie across the southern part of the stage land. The stockpiles were formed from the temporary placement of surplus unwanted material from the construction of the quarry road and stages 1 and 2 of the development and are presently being moved from the site. | · Parts of the stage land that are not subject to this private ruling application are: | - The far corner of the stage which is situated on the former golf course land. | - The part of the stage land where at 1 July 2000 a small farmer's cottage was situated on the land closest to the 'stockpiles". The farm house was an historic original building, which separately included an historic small barn. These buildings were in a state of advanced decay and hence permission was granted to demolish the buildings which look place in 200W. The farm house was occupied up until 200T by an employee of yours who was a caretaker and ranger at an adjacent Reserve. | · Settlements of one of the Stages commenced in the relevant year. None of the specified lots were on the land on which the farmer's house or contractors compound were situated. You applied item 4 of subsection 75-10(3) in calculating the notional GST payable under the margin scheme in December 2012. | · The harbour stage is envisaged to yield a large number of marina berths, commercial development and residential housing of varying densities. | · The harbour will take up a large area of undeveloped land by the beach on the South Eastern side of the development. Detailed plans of the proposed harbour lots for sale are yet to be finalized. | · You have provided draft plans of the harbour development. | · As at 1 July 2000, a former tip was located within the harbour development l. | · The former tip was operated by the local council from a point in time approximately mid 1950 and ceased operation as a tip site in the mid 19ZZs. This area was remediated with works completed in 200V to extract the deposited waste and the material was relocated to another part of the cove site where it was enclosed within a best practice modern waste cell. | · You contend that some of the harbour lots will be on unimproved land, whilst some of the lots will be on the former golf course which would be classed as improved land. | · Stage 1 of the harbour works began in early in the subsequent year. The full arbour construction works includes for the excavation of in excess of 1 million cubic metres of material to form the harbour basin, construction of breakwaters, edge treatments and dredging of an entry channel. | · The first settlements from the development are currently anticipated around December 20UU.