Private ruling: goods and services tax (GST) and the margin scheme
Date of advice: 17 August 2016
Published: September 2016

Ruling: Q1: Can Entity A (you) apply item 4 of the table in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in working out the margin for a supply of real property when selling a freehold interest in vacant land (the Property)? | A1: No, you are not entitled to apply item 4 of the table in subsection 75-10(3) of the GST Act in working out the margin for the supply of the Property, as there are improvements on the Property as at the relevant date of 1 July 2000. Accordingly, the supply does not satisfy all of the circumstances specified in Item 4. All legislative references are to the GST Act unless otherwise stated. Section 7-1 provides that GST is payable on taxable supplies. However, special rules in Division 75 allow you to use a margin scheme for your taxable supplies of real property. Subsection 75-10(3) specifies circumstances in which an approved valuation, made as at a specified date, is to be used in working out the margin for a supply of real property. In particular, the second column in item 4 of the table in subsection 75-10(3) (Item 4) specifies the following circumstances relating to supplies of real property made by way of selling a freehold interest in land: • the supplier is the Commonwealth, a State or a Territory, and • the supplier has held the freehold interest being sold since before 1 July 2000, and • there were no improvements on the land as at 1 July 2000. Of particular relevance in your case, in determining if you can apply Item 4, is the requirement that there were no improvements on the land as at 1 July 2000. Goods and Services Tax Ruling GSTR 2006/6 provides relevant guidance about the meaning of the phrase 'improvements on the land' for the purposes of Division 75. Paragraph 20 of GSTR 2006/6 explains that unimproved land is taken to be land in its natural state. Thus, to establish whether there are improvements on the land, the land is compared with land in its 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 land. In relation to examples of human intervention that may enhance the value of land, paragraph 25 of GSTR 2006/6 provides a list which includes clearing of timber, scrub or other vegetation. In your case, you have provided a copy of an aerial photograph dated before 1 July 2000. The approximate location of the Property marked on the photograph shows human intervention has been physically located on the land as the Property appears to be cleared and grassed. Further, as explained in paragraph 28 of GSTR 2006/6, 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). In your circumstances, the clearing on the Property does not appear to have been exhausted or to have substantially deteriorated. Therefore, as there are improvements on the Property as at the relevant date of 1 July 2000, the supply does not satisfy all of the circumstances specified in Item 4. Accordingly, you are not entitled to apply Item 4 in working out the margin for the supply of the Property.

Relevant facts and circumstances: You are a local government entity and you are registered for GST. You, as vendor, entered into a contract for the sale of vacant land being the Property with the purchaser. The Contract was settled. As at 1 July 2000, the Property did not have any distinguishing features such as gas, water or electricity services or a footpath. You have provided a copy of an aerial photograph dated before 1 July 2000. The approximate location of the Property marked on the photograph shows that the Property is cleared and grassed. You have held the freehold interest being sold since before 1 July 2000.

Relevant legislative provisions: References to the GST Act: • section 7-1 | • Division 75 | • subsection 75-10(3).