Private ruling: GST and improvements on land
Published: December 2014

Ruling: Q1: Are you making a taxable supply to which item 4 in the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (Item 4) of the margin scheme can be used to calculate the margin in relation to lots of land (properties) which are the subject of this ruling? | A1: Yes, for some of the properties, you are making a taxable supply to which Item 4 of the margin scheme can be used to calculate the margin on the supply. For the other properties you are making a taxable supply to which item 1 in the table in subsection 75-10(3) of the GST Act (Item 1) of the margin scheme can be used to calculate the margin on the supply. | Q2: Are you entitled to a refund of overpaid goods and services tax (GST) which arose from not applying the margin scheme under subsection 75-10(3) of the GST Act on the supply of the properties for the specified period? | A2: Yes, you are entitled to a refund of overpaid GST which arose from not applying the margin scheme under subsection 75-10(3) of the GST Act. You will need to re-calculate the refund amount for the properties to which you are unable to use Item 4.

Relevant facts and circumstances: You are registered for GST. You are a government entity. You reported the taxable supplies of the properties for the specified tax periods. You calculated the GST as 1/11 of the sale price and did not choose to use the margin scheme. You subsequently requested to use the margin scheme and requested the Commissioner to exercise his discretion under subsection 75-5(1A) of the GST Act, to allow an extension of time to obtain a written agreement with the purchasers of the properties that the margin scheme is to apply to the sale of the identified property. The Commissioner's discretion was exercised. You entered into an agreement in writing with the purchasers of each of the properties. You acquired all the properties prior to 1 July 2000. You have requested to apply Item 4 to the sale of the properties. Only some of the properties have dense trees covering the property. There are no fence lines. There does not appear to be any clearing of the land. No buildings have been constructed on the land. You contend there have been no improvements to these properties. You provided a notification under section 105-55 in Schedule 1 to the Taxation Administration Act 1953 (TAA). You have received valuations for all properties applying Item 4 and using Method 3 of the valuation methods.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(3) | Taxation Administration Act 1953 section 105-55

Reasons for decision: Summary: You have requested to apply Item 4 to calculate the margin scheme on the properties that are the subject of this ruling. There are three requirements to applying Item 4. They are: • the supplier is the Commonwealth, a State or a Territory • the supplier 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. It is accepted that the first two requirements are satisfied. Goods and Services Tax Ruling GSTR 2006/6 considers the meaning of the phrase 'land on which there are no improvements.' Paragraph 20 of 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 it natural state. Paragraph 22 of GSTR 2006/6 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 the land. We consider that some of the properties are on land that has not had any improvements as at 1 July 2000. As such, you are able to apply Item 4 for these properties. In relation to the other properties we consider that they have had improvements on the land as at 1 July 2000. These properties have had substantial clearing and appear to have been grassed. There have been no fencing or other buildings constructed, however this is not necessary for there to be improvements on the land. There is no doubt these properties are not in their natural state and there has been human intervention in clearing the property. It is reasonable to conclude, and in the absence of any other evidence to the contrary, that this human intervention enhanced the value of the land. Therefore, the GST payable on these properties that do have improvements cannot be calculated under Item 4. Rather, Item 1 will need to be used. In Miscellaneous Taxation Ruling MT 2010/1 the Commissioner explains that a refund or credit may arise where a taxpayer's assessed net amount is amended to, amongst other things, reduce the GST payable. The refund is for tax periods. These tax periods are more than four years from the date of your application for a private ruling, however these tax periods have been preserved based on you notifying us that you would have a refund in relation to these supplies. As you have contended, section 105-65 of the TAA does not apply to these types of supplies. As such, you are entitled to a refund of overpaid GST. As you will have to calculate the margin for the supply of the properties that do have improvements under Item 1, you will be required to recalculate what the GST payable and refund is.