Private ruling: GST and unimproved land
Date of advice: 18 October 2016
Published: March 2017

Ruling: Q1: Is the supply of the Property consisting of Lots 1 and 2 to you by a Official on behalf of a Department, a supply of land upon which there are no improvements for the purposes of section 38-445 of the GST Act and therefore GST-free? | A1: Yes, provided when the supply is made, all the fencing (perimeter and low chain-link) and the sewage pit have been removed from the Property.

Relevant facts and circumstances: Land Contract The Department holds the freehold interest in the Property. The Official on behalf of the Department executed a Land Sale Agreement with you on a specified date in relation to the Property (Land Contract). Settlement was due a specified number of years after the date of sale subject to special conditions being satisfied. However, a relevant Deed was executed on a specified date which varies the settlement date to another date. Parties Both you and the Department are currently registered for GST. Property The Property is situated at a specified location. The Property comprises a number of hectares of land bound by The Property includes the two lots, The Property is subdivided and the larger portion of the Property is on a single title. This portion of the Property is subsequently referred to as Lot 1. The smaller portion of the Property is on a single title. This portion of the Property is subsequently referred to as Lot 2. The surrounding area has been used for primary production from a certain time. Historic and current aerial photography shows that the Property has not been developed. A Plan provides information about the current state of the relevant land, how this land has been used over time and how it has evolved from its natural state. A Survey at a specified date provides further guidance on the 'natural state' of the Property. An assessment of trees on the Property at a specified date provides that an inspection has identified a group of trees that were of no arboricultural value, in poor health and structurally declining. The condition of the tree group was found to be irreversible and it was recommended to remove all the trees.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 38-445 and | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-445(1)

Reasons for decision: Summary: ● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● all terms marked by an asterisk are defined terms in the GST Act ● all reference materials, published by the Australian Taxation Office, that are referred to are available on ato.gov.au On the facts submitted to us, when the supply is made, the Property will be land on which there are no improvements. | Detailed Reasoning - Detailed reasoning: A supply of land by the Commonwealth, a State or a Territory of land is GST-free under subsection 38-445(1) if certain conditions are met. Subsection 38-445(1) states the following: (1) A supply by the Commonwealth, a State or a Territory of land on which there are no improvements is GST‑free if: (a) the supply is of a freehold interest in the land; or (b) the supply is by way of *long‑term lease. However, pursuant to subsection 38-445(2), the supply will not be GST-free if the land in question has already been the subject of a supply that was GST-free under section 38-445. In this case, the Department has held Title to the Property since before mid 20XX and prior to its supply to you, had not previously supplied that land. Therefore, for the Property to be GST-free under subsection 38-445(1), the following requirements must be satisfied: ● a freehold interest in land (or long term lease) must be supplied by the Commonwealth, a State or Territory; and ● there must be no improvements on the land at the time the supply is made. Pursuant to the Land Contract, the Department will supply the freehold interest in the Property to you. In this case, as explained in Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory' , the Department is the “Commonwealth, State or Territory” for the purposes of Section 38-445. Therefore it remains to be determined whether the requirement that there are no improvements on the land at the time the land is supplied to you will be met. 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 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. At paragraph 20 of GSTR 2006/6, the ruling states that 'unimproved land' is taken to be land in its natural state. Therefore, to establish whether there are improvements on the land for the purposes of subdivision 38-N and Division 75, the features of the land in question are to be compared with the features of that land in its natural state. Furthermore, paragraph 21 of GSTR 2006/6 explains that any operation by humans on the land that has the effect of enhancing the value of the land is an 'improvement' ( Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 at 503). The ruling notes that applying the principle in Morrison 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; ● that human intervention must enhance the value of the land at the relevant date for ascertaining whether there are improvements on the land. 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(1) the relevant day is specified as the day 'when the supply is made.' Accordingly, the relevant day in the Department's circumstances is the day the property is to be transferred to you. As explained at paragraph 20 of GSTR 2006/6, the land to be supplied on that day is to be compared with that same land as it existed in its natural state. Determining whether or not human intervention enhances the value of the land entails an objective test. Paragraph 25 of GSTR 2006/6 lists the examples of human interventions that may enhance the value of the land. A thorough examination of the available photographs, in light of the facts submitted to us, shows that the land in question comprises two lots of plain grassland and scrubs on which a small area contains a cluster of planted trees (which are of no value due to poor health). We note that the Plan mentions that the EVC on which the activity area is located comprises largely treeless vegetation dominated by grasses and herbs. Therefore, except for the cluster of planted trees on the Property, the features of the Property reflect the natural state of the land. While there have been human interventions on the land that have enhanced the value of the land and therefore constitute, or did constitute, improvements on the land, such improvements have already been/will be removed or exhausted prior to the time the Property is supplied. On the date of the supply, the only human interventions remaining on the land will be the trees and the stormwater drainage. The trees do not anymore enhance the value or usefulness of the land and the stormwater drainage never did. Accordingly, these human interventions do not constitute improvements on the land. Giving due consideration to the above factors, we consider that the supply of the Property by the Department to you will be a GST-free supply of land on which there are no improvements under subsection 38-445(1).

Documents have been submitted in support of the private ruling application: A recent Google map search of the Property produced satellite photographs and street level photographs from a certain year showing the relevant site to be mainly two lots of undeveloped plain grassland with a small cluster of trees sitting on a small area of the Property. | Contentions: The parties are seeking a private binding ruling in relation to both Lot 1 and Lot 2. | Where the Australian Taxation Office determines that the supply qualifies for the GST treatment outlined in the question at issue, the parties have agreed to treat the supply of the Property as GST-free. | In the event a lot is not eligible to be treated as GST-free under section 38-445 of the GST Act, the parties intend to treat the sale of that lot as a taxable supply under the margin scheme.