GST Q&A ‘ GST and land improvements

A council recently sold an almost vacant block of land, containing small amounts of infrastructure requiring demolishing by the purchaser, after which the land will be suitable for residential development – does this sale satisfy the requirements of a taxable supply?

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Council recently sold a (almost vacant) block of land.  The land contains a redundant concrete water tank which will need to be demolished and removed by the purchaser.  Once this is done, the land will be suitable for residential development.

Could you please advise whether this land sale would satisfy the requirements of a taxable supply (assuming that the normal requirements for making a taxable supply are satisfied).


Generally a supply of real property by a GST-registered entity (such as a Council) would be a taxable supply unless the supply meets the specific conditions of being either an input taxed supply (e.g. ‘old’ residential premises) or GST-free (e.g. supply by a government entity with no improvements on the land  via s. 38-445).

The ATO has issued GSTR 2006/6 setting out its guidelines on what constitutes improvements on the land. This is a question of fact, and will depend on what (if anything) has been done to the parcel of land sought to be sold. Paragraph 10 of GSTR 2006/6 summarises the effect of the relevant provision as follows:

’10. Under subsection 38-445(1), if the Commonwealth, a State or a Territory makes a supply of land on which there are no improvements and the supply is of a freehold interest or long-term lease, it is GST-free unless the land has been previously supplied as a GST-free supply under section 38-445.’

For a detailed discussion of what the ATO considers constitutes improvements on the land, we recommend reviewing GSTR 2006/6. By way of summary, however, we refer to paragraphs 22 to 24:

’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.23. Where there has been a number of human interventions on the land it is necessary to establish whether any of the human interventions enhance the value of the land. If any of the human interventions located on the land enhance its value at the relevant date, then there are improvements on the land. This is regardless of whether the net value of the human interventions enhances the overall value of the land.24.Determining whether a human intervention enhances the value of the land entails an objective test. This means that whether an intervention enhances the value should not be determined by reference to use or intended use by either the supplier or the recipient.’

With regard to the water tank, it would depend on whether this is considered as enhancing the value of the land. On the basis that you have referred to it as redundant and it would need to be removed, there would appear to be an argument that, at the time of the sale, it does not currently enhance the value of the land (and where the purchaser would be required to remove it, then it would probably detract from the value).

Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.