Private ruling: valuation of property for the application of the margin scheme
Published: July 2012
Ruling period: Not applicable

Ruling: Q1: What is the relevant date of valuation that should be considered for the purpose of calculating the margin in the sale of the land by the Vendor? | A1: The relevant date of valuation for the calculation of the margin scheme in the sale of the land by the Vendor is on or after 30 June 2000.

Relevant facts and circumstances: The Vendor, a State Government owned entity, sold real property (Property). The Purchaser purchased the Property under a contract of sale entered into in 2011 and settled also in 2011. Both the Vendor and the Purchaser are registered for the goods and services tax (GST) at the time of the settlement. Vendor and the Purchaser agreed in writing to apply the margin scheme to the sale. The Vendor owned the Property before the advent of GST. That is, from before on or after 30 June 2000. The margin was calculated as the sale price less the valuation of the Property as at on or after 30 June 2000 and the Purchaser paid the GST amount so calculated to the Vendor. During the ownership of the Property by the Vendor, the following works were executed: · erection of fences along the boundary · bollards installed on the street frontage · recreational facilities installed by the local council when the property was licensed by the council for recreational purposes (date unknown) · the Property maintained by regular mowing and spraying for weed control · trees along the boundary been cut and removed · underground water supply transfer mains were installed along the front of the Property · driveway crossover/kerb and channel installed on the road to the property

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 75-10.

Reasons for decision: Summary: Subsection 75-10(3) of the GST Act states that: Subject to section 75-11, if · the circumstances specified in an item in the second column of the table in this subsection apply to the supply; and · an *approved valuation of the freehold interest, *stratum unit or *long-term lease, as at the day specified in the corresponding item in the third column of the table, has been made; · the margin for the supply is the amount by which the *consideration for the supply exceeds that valuation of the interest, unit or lease. (The asterisked items are defined in section 195-1 of the GST Act). Based on the facts, section 75-11 of the GST Act has no relevance in this case. Item 4 of the table in subsection 75-10(3) states that where the supplier is the Commonwealth, a State or a Territory and has held the interest, unit or lease since before on or after 30 June 2000, and there were no improvements on the land or premises in question as at on or after 30 June 2000, then the valuation would be the day on which the taxable supply takes place. The Purchaser contends that the improvements on the land as at on or after 30 June 2000 did not enhance its value as at that date. It is therefore necessary to establish whether the human interventions prior to on or after 30 June 2000 on the Property constitute improvements that added value to the Property as at on or after 30 June 2000. Goods and Services Tax Ruling 2006/6 (GSTR 2006/6) provides the Tax Office view on improvements on land for the purposes of Subdivision 38-N and Division 75 of the GST Act. Paragraph 20 of GSTR 2006/6 states that unimproved land is taken to be land in its natural state. Thus, to establish whether there were improvements on the land for the purpose of these provisions, the land in question has to be compared with land in its natural state. The land in question in this case has had several human interventions prior to on or after 30 June 2000. Although in the submission made for this private ruling some of the dates of such human intervention are not provided, it is assumed that all the human interventions stated in the ruling application took place before on or after 30 June 2000. The rationale for this assumption is that had these interventions taken place on or after on or after 30 June 2000, the applicants would either not mentioned them (as they would not be relevant) or have been able to demonstrate it to be the case rather than state "date unknown". It is therefore safe to assume that these interventions took place before on or after 30 June 2000. The following are listed as human interventions on the Property: · erection of fences along the boundary · bollards installed on the street frontage · recreational facilities installed by the local council when the property was licensed by the council for recreational purposes (date unknown) · the Property maintained by regular mowing and spraying for weed control · trees along the boundary been cut and removed · underground water supply transfer mains were installed along the front of the Property · driveway crossover/kerb and channel installed on the road to the property Paragraph 22 of GSTR 2006/6 states that for there to be improvements on the land: · there must have been 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. Paragraph 23 of GSTR 2006/6 states, 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 whether the net value of the human intervention enhances the overall value of the land. The relevant date we are considering in this case is on or after 30 June 2000. The issue then is whether any human interventions listed above enhanced the value of the land as at on or after 30 June 2000. As stated in paragraph 20 of GSTR 2006/6 cited above, the enhancement of value that needs to be considered is in comparison to the value of the land in its natural state. Further, paragraph 24 of GSTR 2006/6 states that the enhancement of the value by human intervention should not be determined by reference to use or intended use by either the supplier or the recipient. Thus, we consider all of the human interventions stated above, except the last two items, did enhance the value of the land in the context of the public ruling GSTR 2006/6. The two items (f) and (g) are not considered as these human interventions could be construed as being made outside of the Property. The rest of the human interventions listed from (a) to (e) can be considered as enhancement of value of the land as at on or after 30 June 2000 when compared to the Property being in its natural state. These enhancements may not be of use or intended to be used by either the Vendor or the Purchaser. But that should not be a consideration to determine whether there were improvements on the Property as at on or after 30 June 2000 as per GSTR 2006/6. Human interventions such as items (a) and (b) may have deteriorated and may have no longer enhanced the value of the Property as at on or after 30 June 2000. Nevertheless, items (c), (d) and (e) certainly would have enhanced the value of the Property as at on or after 30 June 2000 than its value in its natural state. Paragraph 24 of GSTR 2006/6 states: Determining whether a human intervention enhances the value of the land entails an objective test. This means whether an intervention enhances the value should not be determined by reference to use or intended use by either the supplier or the recipient. It is possible that neither the Vendor nor the Purchaser would use the Property for recreational purpose as it was intended in the past. But the objective test is not whether these human interventions would be of value to the Purchaser, but whether they add value over and above had the Property been left in its natural state. It is the view of the Tax Office that it does. The applicants for this private ruling have submitted a valuation report which provided the valuations as at on or after 30 June 2000 and at a date close to settlement in 2011. The report refers to improvements on the land and states that the Property is cleared land with provisions for it to be used for recreational purposes when the site was licensed to the Council before on or after 30 June 2000. The valuation report also mentions the existence of high chain-wire fences along some boundaries of the Property although it does not mention when such human interventions had taken place. The value added due to human interventions up to on or after 30 June 2000 does not have to be significant to exclude item 4 of the table in subsection 75-10(3) of the GST Act for determining the valuation date as the date of supply. As the human interventions as at on or after 30 June 2000 is considered to have added value to the Property, item 4 of the table is not applicable in this case. Item 3 of the table in subsection 75-10(3) states that where the supplier is registered or required to be registered for the GST and held the interest, unit or lease since before on or after 30 June 2000, and there were improvements on the land or premises in question as at on or after 30 June 2000, then the valuation would be at on or after 30 June 2000. As there were improvements on the land which added value to the Property as at on or after 30 June 2000, the Vendor cannot use the date of the supply to calculate the margin. Instead, the Vendor must use the valuation as at on or after 30 June 2000 to calculate the margin.

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