Private ruling: Grants of Unimproved land by Government
Date of advice: 5 August 2016
Published: September 2016

Ruling: Q1: Are the supplies of the Subdivided Lots by the Government to the Developer GST-free supplies under section 38-445 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, where the Lease is granted over the land as described in your application. | Q2: If the Subdivided Lots are not GST-free, and both parties agree to apply the margin scheme, what is the valuation date? | A2: N/A (see answer to Question 1).

Relevant facts and circumstances: The Government (you) proposes to enter into a development agreement (the Agreement) with a Developer, under which the Developer will be granted a Crown Lease (Lease), to develop a proposed Lot X. The locality map shows proposed Lot X adjoining Lot B and part of Lot A. Under the Agreement, the Lease will eventually be surrendered in return for freehold titles to developed Lots (the Subdivided Lots) in the name of the Developer. A developed Lot is a Lot in respect of which there exists a Certificate of Practical Completion. A Lot is an area of land indicated on the master plan in relation to which a separate certificate of title is intended to issue and which is to become available for separate occupation or use as a result of development of the property. The Agreement: • Under clause …, the Developer is required to comply with a master plan approved by the Government. • Subclause … stipulates that the Lease commences on the Lease Commencement Date, which is the date the Crown Lease is registered at the relevant Titles Office (TO). • Subclause … requires the Developer to pay the purchase price to the Government within xx number of days of the issue of a Certificate of Practical Completion for that stage, where purchase price is the amount set out in a schedule to the Agreement for the grant of freehold title in respect of the property. • Paragraph (…) of clause … requires the Developer to submit to the Government a works program, developed in accordance with the construction guidelines for that stage for review by the Government as soon as practical after issue of a development approval for a stage. • Clause … sets out the requirements for the development of the property. • Clause … provides for the Developer to apply to a particular Authority for a Certificate of Acceptance and Handover of Works in relation to a completed stage. • Subclause … provides for the Developer to apply to the Government for a Certificate of Practical Completion for a stage and must provide relevant documentation. • Under subclause …, the Government is to issue a Certificate of Practical Completion if satisfied that practical completion has been reached. • Subclause … provides for the Developer to surrender the Lease in respect of the area of the property for which the stage relates simultaneously with the issue of certificates of titles for the Subdivided Lots. • Under subclause …, following receipt of the approved survey plan and payment for the stage, the Government will lodge at the TO notices of grant to facilitate the issue of certificates of title in the name of the Developer in respect of the Subdivided Lots in that stage. • Under subclause …, all consideration provided under the Agreement is exclusive of GST unless it is specifically expressed to be GST inclusive. • Schedule … lists the purchase price in respect of each stage. Lease - Annexure … to the Agreement • Commencement Date is the date that this Lease is registered by the Registrar-General. • Term is a period of … years from the Commencement Date. • Clause … of the provisions states the annual rent for the lease is … • Clause … of the Provisions stipulates that the Lessee shall not surrender or attempt to surrender the whole or any part of this Lease with a view to obtaining title for that part of the lease area unless there is in respect of that part of the lease area a Certificate of Practical Completion issued in accordance with the provisions of the Agreement. Master Plan - Annexure … to the Agreement • Pages … and … respectively depict the existing development and the proposed development of Lot X. Environment Referral (Referral) • Paragraph … states that the project location contains the following features: Mangrove forests and monsoon vine thicket -These are considered to be Significant vegetation types (under the Government Planning Scheme) in that location. • Paragraph … describes the Project area as consisting of: • Lot A; • Lot B; • Proposed Lot B; and • Proposed Lot X. • Reference to Proposed lot B is incorrect as this lot already exists. The reference should be to Proposed Lot Y as confirmed by Figure … Note also that there are inconsistencies throughout the Referral in relation to the project area. The Government confirms that the project area includes: • Partial Lot A; • Lot B; • Lot C; • Lot D; • Proposed Lot Y; and • Proposed Lot X. • The Developer already has development leases for Lots A and B and it is intended that the Developer surrender those leases to allow the consolidation of the project area into one lot (Proposed Consolidated Lot X). The consolidated map shows the proposed consolidated Lot X consisting of … ha. • Figure … provides an outline of the project area incorporating the lots to be consolidated including partial Lot C, currently held by the Government under freehold title, and Lot B and partial Lot A currently held by the Developer under Crown leases. • Figure … also refers to Proposed Lot Y which will be consolidated with Proposed Lot X. • Figure … does not refer to Lot D, also currently held by the Government under freehold title, which was added into the project area after the creation of this document. (An amended Figure … shows the location of Lot D.) • The Developer will be required to pay for Proposed Lot X excluding Lots B, C, D and Partial Lot A. • Figure … also shows a road reserve which will not be included in the Lease for the consolidated lot. The Government will undertake development of the road reserve but the Developer will be required to contribute an estimated $... towards the cost of the road to Proposed Lot X. • There is an existing seawall within Lot B bordering on the new area of Proposed Lot X which will be re-located to the outer boundary of Proposed Lot X. • Paragraph … states that the project area is approximately … ha comprising of: • Approximately … ha consisting of undeveloped lots and cleared area; • Approximately … ha to be cleared; • Approximately … ha water bodies to be reclaimed and developed. • The … ha of cleared land is located on Lots B, C and part of Lot A, which are currently held under Crown Leases by the Developer, and Lot C which is currently held by the Government but originally formed part of the Developer's existing Crown Leases. Lot D is also cleared land that originally formed part of the developer's existing Crown Leases and Proposed Lot Y also has some cleared land which was a laydown area used in a previous development for storage of materials and equipment. • Figure … shows Proposed Lot Y at the top of the project area separately, but it is not intended to sub-divide this from Proposed Lot X. • Figure … delineates the part of the project area containing the road reserve on Proposed Lot X. • Figure … provides an overview of the vegetation existing on the project area. The former laydown area shown in Proposed Lot Y has been overgrown with weeds. • The Referral refers to land previously cleared of native vegetation during a previous development now overgrown with weeds. This relates to Proposed Lot Y, Lot B and partial Lot A. There is also reference to noxious weeds being present in the project area with gamba grass and mission grass located on the former laydown area. Aerial photographs of proposed Lot X dated … and … respectively both clearly show the site as being in its natural state except for the former laydown area located at the top. There is reference to an existing sea wall which will be removed and stored for later re-use in the final sea wall. The existing sea wall is located on Lot B bordering on Proposed Lot X. A Google search of the area on … produced satellite photographs showing the relevant site to be mainly undeveloped bushland with a small cleared area at the top (assumed to be the former laydown area).

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

Reasons for decision: Summary: In these reasons for decision: • 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 (ATO), that are referred to are available on ato.gov.au A supply of land by the Commonwealth, a State or a Territory of land is GST-free under subsection 38-445(1A) if certain conditions are met. 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. However, 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 Government has continuously held Title to the land and up to the grant of the Lease there will be no previous sale or lease of that land. In your circumstances, the supplier is the Government and; • the supply is of freehold interest in the Subdivided lots [satisfying the requirement in paragraph 38-445(1A)(a)]; • the Government would have previously supplied the land by way of the Lease [satisfying the requirement in paragraph 38-445(1A)(b)]; and • only when conditions to which the lease is subject have been satisfied will the Developer be entitled to the freehold interest [satisfying the requirement in paragraph 38-445(1A)(d)]. Therefore it remains to be determined whether the requirement in paragraph 38-445(1A)(c) is satisfied, that is, whether there will not be any improvements on the land at the time the Lease is granted. 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. Paragraph 20 of GSTR 2006/6 explains that to establish whether there are improvements on the land, that land is compared with land in its natural state. At paragraph 22, GSTR 2006/6 adopts the position that for there to be 'improvements on the land', the following requirements need to be satisfied: • there must be 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. 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.' Accordingly, the relevant day in your circumstances is the day the Lease is granted. It follows that the land 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 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. Furthermore, we consider that principles similar to those adopted by the Commissioner in forming the view expressed at paragraphs 48 to 51of GSTR 2006/6 also applies for the purposes of subsection 38-445(1A). That is, it is the individual subdivided lots being supplied by the Developer that are subject to the 'improvements' test and not the larger area from which they are subdivided. In this case, you have provided copies of the location plan, aerial photographs of the proposed site and the Referral. The photographs show the site to be mainly undeveloped bushland with a small cleared area at the top. A 'Google' search of the site on … revealed the topography of the area to still be the same. Subclause … of the Referral, describe the features of the project location. The Referral describes the size of the work area at subclause … and mentions that the project area includes approximately … ha of undeveloped lots and area already cleared. You have explained that this cleared part of the project area is situated on the western outskirt of the area and is part of overlapping existing lots that are to be consolidated into a single lot (proposed lot X) for the purposes of the development. There is also a cleared area at the top of the site (on proposed lot Y) which was a laydown area used in a previous development for storage of materials and equipment. Figure … of the Referral 'marks' the vegetation on the cleared parts to be either 'Disturbed (weeds)' or 'Open Eucalyptus Woodland (disturbed)'. Paragraph (…) of subclause … of the Referral provides details of the current state of the environment of the project site. Applying the principles adopted in GSTR 2006/6, we consider that only unimproved bushland will be supplied when the Lease over this development area is issued to the Developer. While a number of things listed in paragraph 25 of GSTR 2006/6 will happen before you subsequently transfer freehold title of the Subdivided lots to the Developer, it is the state of the land at the time the Lease is issued (being the previous supply) that is critical in determining whether there are no improvements on the land for the purpose of paragraph 38-445(1A)(c). While small sections of the project area had already been cleared, we consider that the clearing has deteriorated over time and no longer enhances the value of the land. In coming to this conclusion, we have applied the guidelines provided at paragraph 28 of GSTR 2006/6 as reproduced below taking into consideration the description of the vegetation of these cleared parts in the Referral as either 'Disturbed (weeds) or 'Open Eucalyptus Woodland (disturbed)' and an examination of the most current 'Google' satellite photograph of the area: '28. In other circumstances, human interventions that were once improvements but that have deteriorated over time or have contributed to land degradation, may no longer enhance the value of the land and are not improvements. For example, clearing is a human intervention which ordinarily enhances the value of the land. However, clearing may deteriorate over time with the regrowth of the same type of vegetation or even different vegetation (for example, lantana, blackberry or other noxious weeds). Clearing also may degrade the land by later causing erosion or salinity problems.' It follows from the above discussion that at the time the Lease is issued to the Developer there will be no improvements on the specific parts of the land from which the Subdivided lots to be supplied to the Developer will eventually be carved out. Consequently, the requirement in paragraph 38-445(1A)(c) is met. Accordingly, the supplies of the Subdivided lots to the Developer upon the issue of Certificate of Title for these lots will satisfy all the requirements outlined in subsection 38-445(1A) and will therefore be GST-free.

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