Edited version of your written advice

Authorisation Number: 1012662960418

Ruling

Subject: Refund of overpaid GST

Question 1

Are you entitled to a refund of overpaid GST in the amount of $ related to sales of real estate under the margin scheme where the GST payable was previously miscalculated and where sales were completed during the relevant period?

Answer

No.

You are an entity and own parcels of land, much of which it has owned since before 1 July 2000.

You are registered for goods and services tax (GST).

You owned parcels of land which were subdivided and portions sold off since 1 July 2000 including during the relevant period.

These subdivided lots were unimproved at 1 July 2000 and are collectively referred to herein as the 'Ruling Properties'. You submitted detailed descriptions of the lots comprising the Ruling Properties, attached and marked as Annexure A. Land sales of the Ruling Properties in the period total $.

The sales of the subject parcels of land have been pursuant to standard Contracts for Houses and Residential Land. Each of the contracts indicates that the margin scheme will be used in making the taxable supply.

You attached, and marked as Annexure B, a copy of the contract for a property which is submitted as a sample contract and is representative of all of the contracts relating to the Ruling Properties insofar as GST is concerned.

You inform us that:

• The price at which the Ruling Properties were sold was the market value determined by you as the price that a willing but not anxious vendor and purchaser would enter an agreement to transfer the lands.

• The price was set by you without taking into consideration any GST that may be payable on the sale of each parcel of land.

• You operated in a free market and sold the land at the going market rate.

• In arriving at the price at which the lots of land were advertised, you did not start with a particular price and then add GST to the prices obtained for the sale of each property. The prices are even amounts, for example $.

• The GST paid by you on each parcel of land is a cost absorbed by you in the same way that costs of undertaking subdivision work including the construction of roads, drainage, sewage and other infrastructure.

You believe that none of the purchasers of the Ruling Properties were registered or required to be registered for GST.

You have kept records of the land sales made during the relevant period covered by this ruling application.

In Business Activity Statements (BAS) lodged by you for the relevant months, representing the period during which the Ruling Properties were sold, the margin was calculated as the difference between:

• the sale price per the contract for sale; and

• the valuation at 1 July 2000 of englobo land apportioned to each block of land sold.

You have calculated the amount of the margin in accordance with item 1 of the table in subsection 75-10(3). The GST so calculated on this margin is 1/11th of the margin. The GST paid by you using the above calculation has been inserted in the attached Annexure A.

You have attached to this application, and marked as Annexure C, a series of aerial photographs taken between specific years which show the parcels of land making up the Ruling Properties at issue in this application.

You believe that as at 1 July 2000, these parcels were all unimproved and in their natural state being devoid of built structures and comprised of predominantly flat land with native grasses, shrubs and trees.

Under the contracts for sale, you and the purchasers agreed to apply the margin scheme to the sales of the Ruling Properties.

You submit that you are entitled to apply another item instead. .

Notification and amount of refund

You notified the Commissioner in accordance with subsection 105-55 of the Taxation Administration Act 1953 of your entitlement to a refund and the notification has been confirmed by the Commissioner for tax periods that start before 1 July 2012.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 75.

Reasons for decision

Unless otherwise stated, all legislative references are legislative references to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 1

The Commissioner has provided clarification on the meaning of the phrase "land on which there are no improvements" in 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).

It is important to consider the view outlined in GSTR2006/6 in its entirety in order to determine the Commissioner's view on what constitutes improvements on the land. The premise of the Commissioner's view is outlined at paragraph 20 which states:

20. Unimproved land is taken to be land in its natural state. Thus, to establish whether there are improvements on the land for the purpose of these provisions, the land is compared with land in its natural state.

In relation to any improvements on the land from the land's natural state GSTR 2006/6 follows the principle established by High Court in Morrison v. Federal Commissioner of Land Tax (1914) 17 CLR 498 and states at paragraph 22:

22. Applying this principle 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; and

• that human intervention must enhance the value of the land at the relevant date for ascertaining whether there are improvements on land.

Paragraph 23 of GSTR 2006/6 provides that where there have been a number of human interventions on the land it is necessary to establish whether any one of the human interventions enhances the value of the land at the relevant date. Whether the net value of the human interventions enhances the overall value of the land is irrelevant.

Paragraph 25 of the ruling provides a list of examples of human interventions which may enhance the value of land that includes:

• houses, town-houses, stratum units, separate garages, sheds and other out-buildings

• commercial and industrial premises

• 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

• removal of rocks, stones or soil

• filling of land.

One of the photographs you supplied clearly shows that the land has been extensively cleared from its natural state and therefore improved as at that date. The land looks as if it has been used as farmland since prior to 1 July 2000 which means it has been cleared of natural timber, scrub or other vegetation and may have had other interventions as indicated above. Another photograph supplied does not indicate that the improvements have been exhausted nor has the land returned to its natural state. It is highly unlikely that the improvements have been exhausted or the land has returned to its natural state before you sold any of the Ruling Properties.

Consequently we conclude that the Ruling Properties is land on which there are improvements as at 1 July 2000 for the purposes of Division 75.

You have stated that you have calculated the amount of the margin in accordance with item 1 of the table in subsection 75-10(3) being the difference between the consideration on sale and the valuation as at 1 July 2000.

As we have concluded that the Ruling Properties is land on which there are improvements as at 1 July 2000 for the purposes of Division 75, item 3 of the table in subsection 75-10(3) applies. The appropriate valuation date is as at 1 July 2000. As the appropriate valuation dates for items 1 and 3 of the table in subsection 75-10(3) are the same, you have correctly calculated the margin under the GST Act. You have correctly paid 1/11^th of this margin as GST. Accordingly, there is no miscalculation of GST and therefore no overpayment of GST. Consequently, there is no refund of GST available.

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