Private ruling: GST & the supply of land
Published: February 2013

Ruling: Q1: Is the supply of freehold title to land by you, pursuant to the terms of a Development Lease, GST-free under subdivision 38-N of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes | Q2: If not a GST-free supply, can the margin scheme under Division 75 of the GST Act be used for the residential Lots for which a freehold title has been issued subject to a caveat? | A2: Based on the answer to Question 1, this question is not relevant. | Q3: If not a GST-free supply and the response to Question 2 above is negative, does the Commissioner approve, under paragraph 75-5(1A)(b) of the GST Act, the extension of the date for making a written agreement to the date the caveat is discharged? | A3: Based on the answer to Question 1, this question is not relevant. | Q4: If not a GST-free supply and the margin scheme is used, which item in the table at subsection 75-10 of the GST Act applies as at the valuation date? | A4: Based on the answer to Question 1, this question is not relevant. | Q5: If not a GST-free supply and the margin scheme is used, is the proposed valuation methodology acceptable as a reasonable basis for calculating the margin? | A5: Based on the answer to Question 1, this question is not relevant. | Q6: Do you have a GST liability in relation to your Lots? | A6: No | Q7: Is your supply of a right to develop land consideration for Development Works supplied by the Developer? | A7: No.

Relevant facts and circumstances: · You and the Developer are registered for GST. · You entered into a Development Agreement with the Developer for the development of an area of land. · The Development Agreement incorporates the following relevant clauses: o Definitions o Special Conditions o Approvals to Develop the Lease Area o Connection of Developers Works to Town Systems o Utility Easements on The Lease Area o Transfer of Land and Works and Granting of Easements etc o Surrender of the Lease for freehold title o Caveats Schedule 1 details include: o The Lease Area o Date on which all titles are to be issued Schedule 4 Special Conditions o You must be paid a percentage of gross sale price of a Titled Lot o You have the option to purchase certain Lots o Removal of specified infrastructure · The Development Agreement provides for a Development Lease followed by freehold title when the Developer's Works have been completed. · The Developer is required to surrender the lease in respect of Developed Lots as directed by you. · A separate certificate of freehold title is to be issued to the Developer for each Developed Lot to be transferred to the Developer under the terms of the Development Agreement. · You will register a caveat on each Titled Lot to secure your interest. · The caveat will be discharged when you receive the agreed payment set out in Schedule 4. · Utility Easements and Open Space Land will be handed over to you. · If the supply is not GST-free, you intend to enter into an agreement with the Developer to use the margin scheme in relation to sales of residential lots. · Work has been completed in respect of some lots and freehold title has been issued with a registered caveat. No payments have been made to you by the Developer in respect of these Lots. · A Geotechnical Investigation Report and an Archaeological Survey Report were prepared in respect of the proposed Subdivision. · The Geotechnical Investigation Report confirms that the site was not developed. In recent times the site has been used as an unregulated dumping ground and by four wheel drives and other motor vehicles. · A Highway did run through the site but this has been relocated and decommissioned. Remnants of the Highway still exist. · The Development Agreement required the Developer to remove existing above ground water mains and associated infrastructure. · The Archaeological Survey Report confirms there are no improvements on the land although there were some remnants of the use of the land. There is also pipeline debris from the pipeline realignment. · An aerial photograph shows the Development Area as unimproved bushland. A previous aerial photograph confirmed the area was still unimproved bushland at that time. Aerial photographs contained in the Geotechnical Investigation Report and Archaeological Survey Report confirms the land to be natural bushland when the reports were issued. · The bush has reclaimed the land and recent unauthorised activities have been detrimental to the land. · The development area was not supplied as a GST-free supply at any time. You provided the following additional information: · You have confirmed that the Developer will not receive freehold title to any of your Lots. The Developer will be required to surrender the lease on these Lots. · The Development Agreement refers to certain infrastructure. · The infrastructure has been de-commissioned and is no longer used for any purpose. This is what the Developer is required to remove. · The Archaeological Survey Report confirms that there were only remnants of the infrastructure remaining at that time. · The Development Permit shows developed Lot xxxx. Developed Lot xxxx has power, water and telecommunications and these would be the systems that the Developer would connect to for the Development Area. These utilities are not on, or attached to the Development Area and are not available to the Developer until authorised by the relevant authority. · There are no gas connections applicable to any of these developments. You provided the following attachments in support of your application: · Development Agreement · Report on Geotechnical Investigation · Archaeological Survey Report · Aerial photography · Development Permit Attachment - Google Earth photo of Lot xxxx · Variation of Conditions - Description of land the subject of the permit

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

Reasons for decision: Summary: Is your supply of freehold title to land, pursuant to the terms of a development lease, GST-free under subdivision 38-N of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Section 9-5 outlines the requirements for a taxable supply: You make a taxable supply if: (a) you make a supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. Division 38 sets out the supplies that are GST-free. In particular, subdivision 38-N deals with grants of land by government. Under subsection 38-450(1), 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 by way of a lease other than a long-term lease and the lease is subject to conditions that when satisfied entitle the recipient to the grant of a freehold interest in or long term lease of the land. When the Commonwealth, a State or Territory subsequently supplies the freehold interest or long term lease, it is GST-free under subsection 38-445(1A), unless the land has previously been supplied as a GST-free supply under section 38-445. Subsection 38-445 (1A) states: A supply by the Commonwealth, a State or a Territory of land is GST-free if: (a) the supply is of a freehold interest in the land, or is by way of *long-term lease; and (b) the Commonwealth, State or Territory had previously supplied the land, by way of lease, to the *recipient of the supply; and (c) at the time of that previous supply, there were no improvements on the land; and (d) because conditions to which that lease was subject had been satisfied, the recipient was entitled to the supply of the freehold interest or the supply by way of long-term lease. In your case, the supply of the freehold interest in the land is being made by an Australian State. 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) discusses the meaning of the phrase 'improvements on land' in the context of the phrases 'improvements on the land' or 'no improvements on the land' in 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. | 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 3 for ascertaining whether there are improvements on land. 23.Where there has 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. It should be noted that the term 'improvements on the land' is not limited to visible structural improvements and includes improvements below the surface of the land, such as underground drainage or other facilities. The table in paragraph 34 of GSTR 2006/6 specifies the relevant day for ascertaining whether there are improvements on the land. In relation to subsection 38-445(1A) the relevant day is specified as the day 'when the land was previously supplied by the Commonwealth, a State or a Territory by way of a lease to the recipient of the supply'. Determining whether or not human intervention enhances the value of the land entails an objective test. Paragraph 25 of GSTR 2006/6 lists the following examples of human interventions that may enhance the value of the land: · Houses, town-houses, stratum units, separate garages, sheds and other outbuildings; · 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. To be an improvement, the human intervention must enhance the value of the land. In some circumstances, human interventions that were once improvements may have deteriorated over time and may no longer enhance the value of the land and are not improvements. Paragraphs 32 and 33 of GSTR 2006/6 discuss multiple human interventions on the land and state: 32. Where there are a number of human interventions on the land, it is not appropriate to take a holistic approach to establishing whether there are improvements on the land. Instead, it is necessary to determine whether any of the human interventions enhance the value of the land. If any of the human interventions enhance the value of the land there are improvements on the land. 33. For example, a building that is uninhabitable because it is derelict and condemned by order of the local council does not enhance the value of the land. The building in these circumstances is a detriment rather that an improvement. However, if the land on which the building is located is cleared and the clearing has not deteriorated or has not degraded the land, there are improvements on the land. The clearing still enhances the value of land. Whether a human intervention enhances the value of the land is an objective test which cannot be determined by reference to use or intended use by either the supplier or the recipient. The issue of whether there are improvements on the land is a question of fact. In your case, a Geotechnical Investigation Report and an Archaeological Survey Report were prepared in respect of the proposed Subdivision. The Geotechnical Report provides a short history of the area and states that the site is currently not developed. The report states that the site is vegetated with mature eucalypts, cycads and weeds with grasses and melaleuca trees in the poorer drained areas. Minimal vegetation clearing has occurred onsite with the exception of the old Highway where a slight road reserve was established. The Archaeological Survey Report outlines the current and past land uses. It states that the land in the project area has no current land use other than occasional recreational uses such as dirt bike riding and four wheel driving. Squatters have used the area extensively and have built huts, sheds and other structures on the land. There are also a number of old car bodies in the area. The Archaeological Survey Report further confirms that there are no improvements on the land although there were some remnants of the use of the land including infrastructure debris. An earlier aerial photograph shows the Development Area as unimproved bushland. A later aerial photograph confirms the area was still unimproved bushland at that time. Aerial photographs contained in the Geotechnical Investigation Report and Archaeological Survey Report confirms the land to be natural bushland when the reports were issued. The bush has reclaimed the land and recent unauthorised activities have been detrimental to the land. There are remnants of decommissioned infrastructure on the Development Area which is no longer used for any purpose. The area adjacent to the Development Area has power, water and telecommunications and these would be the systems that the Developer would connect to for the Development Area. These utilities are not on, or attached to the Development Area and are not available to the Developer until authorised by the Relevant Authority. There are no gas connections applicable to any of these developments. Based on the information provided, we consider that there were no improvements on the land at the time that the Development Agreement was entered into. As a result, the requirements outlined in 38-445(1A) have been met and the freehold supply of title to the land, to the Developer, will be GST-free. | Detailed Reasoning - Questions 2 - 5: Based on the answer to Question 1, Questions 2 to 5 are not relevant for the purpose of this ruling. | Detailed Reasoning - Question 6: Do you have a GST liability in relation to your Lots? You advised that you have confirmed that the Developer will not receive freehold title to any of your Lots. The Developer will be required to surrender the lease on these Lots. Consequently no supply is made to you by the Developer in respect of your Lots and you will not have a GST liability in respect of these Lots. | Detailed Reasoning - Question 7: Is your supply of a right to develop land consideration for development works supplied by the Developer? Division 82 provides that GST does not apply to transactions for making supplies (commonly referred to as in kind developer contributions) in return for the supply by an Australian government agency of a right to develop land. Subsection 82-5 states: 1. The supply, by an *Australian government agency, of a right to develop land is not treated as *consideration for another supply if the other supply complies with requirements imposed by or under an *Australian law. 2. It does not matter whether the supply is made to the *Australian government agency. 3. This section has effect despite section 9-15 (which is about consideration) In your case, the particular State is an Australian government agency (Section 995-1 of the Income Tax Assessment Act 1997 ). The Developers works are defined in the Development Agreement: A Development permit is issued pursuant a Planning Act. Attached to the Development permit is a document titled 'Variation of Conditions Description of Land, The Subject of The Permit'. This is issued pursuant to the Planning Act. This document outlines the requirements with which the Developer must comply. From the information provided it is evident that the supply of Developers Works is imposed by or under an Australian Law. To the extent that the supply by you, of a right to develop land, is made for the Developers Works, imposed under the Planning Act, the supply of the right will not be consideration for the supply of the Development Works.

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