External reviews

Notional GST external review opinion - improvements on land (Finkelstein evaluation)

Date: 15 April 2015

Context

1. The supply of a freehold interest or a long-term lease of land by the Commonwealth, a State or a Territory is GST-free where the land has no improvements when supplied (subsection 38-445(1) of the GST Act).

2. Also, where the margin scheme (Division 75 of the GST Act) applies, and:

•

the supplier of land is the Commonwealth, a State or a Territory which has held the interest, unit or lease since before 1 July 2000, and

•

there were no improvements on the land or premises in question as at 1 July 2000,

the land is valued as at the date on which the supply takes place (table item 4 of subsection 75-10(3) of the GST Act) as if there were no improvements on the land when the supply takes place (subsection 75-10(3A) of the GST Act).

Legal issues considered

3. For the purposes of these provisions:

•

For the phrase 'land on which there are no improvements', what is an improvement?

•

Can improvements be lost?

•

Does the highest and best use of the land or the intention of the purchaser determine whether something is an improvement?

•

Where the land consists of multiple titles, will each title always be assessed individually to determine if there is an improvement? Alternatively, will there be situations where multiple titles are assessed together so that, if there is an improvement on any of the titles, the land comprising the multiple titles will have improvements?

Principles decided

4. In determining what is an improvement:

•

An improvement to land is a physical alteration or addition which results in an enhancement in the value of the land from the value in its natural state, or an alteration or addition which will improve the usefulness of land for an occupier when compared with its natural state.

•

Where land had improvements, they will cease to be improvements if they have been 'exhausted'. However, simply because improvements cease to affect the land's market value does not mean that the improvements have been 'exhausted' or that the land has the character of 'land with no improvements'.

•

It is not relevant whether a physical alteration or addition contributes to the 'highest and best use' of the land or contributes to the purpose for which a purchaser intends to use the land. For example, if the highest and best use of the land is for residential development, or the purchaser intends to use the land for residential development, it does not matter whether the physical alteration or addition adds value or usefulness for a residential development.

•

An improvement has not been lost simply because of a change in the preferred activity that can be conducted on the land.

5. Where land consisting of multiple titles is supplied:

•

Individual titles will not always be separate supplies.

•

The facts will determine whether the supply of the land is a single supply or multiple supplies. The starting point is the contract which brings about the supply. In most cases, the subject matter of the supply should be identifiable from the terms of the contract.

•

Each supply of land is separately assessed to determine if there are any improvements on the land.

•

If it is a single supply of multiple titles, the land will have an improvement if any of the titles has an improvement.

Legislative References:
   GSTA 1999
   GSTA Subdiv 38-N
   GSTA 1999 38-445(1)
   GSTA 1999 Div 75
   GSTA 1999 75-10(3)
   GSTA 1999 75-10(3A)