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Edited version of private ruling
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Ruling
Subject: Goods and services tax and the supply of a going concern
Question:
Is the supply of the property with assignment of the lease to you a GST-free supply of a going concern?
Advice/Answers:
No. The supply of the property with assignment of the lease to you is not a GST-free supply of a going concern.
Relevant facts:
· You are registered for GST.
· Our records show that you applied to be registered for GST on a certain date, and that your GST registration was backdated to a prior date.
· You purchased a commercial property.
· The date to which your GST registration was backdated was the date of purchase of the property.
· You entered into a written contract for the purchase of the property.
· The purchase price of the property was for a specified amount of money.
· According to information contained in the contract of sale, the settlement for this purchase was 42 days after the date of purchase.
· This written contract is in the form of the standard land contract for the law society and real estate institute of your state.
· The unit purchased was leased to a tenant.
· The lease agreement with the lessee was signed over to you.
· The contract of sale includes a clause stating that the supply of the property is a GST-free supply of a going concern.
· The contract of sale also includes a clause stating that the supply of the property is not a taxable supply.
· A special clause in the contract states that you indemnify the vendors against any GST liability payable by them.
· Although you are now registered for GST and your GST registration was backdated, you were not registered for GST at the time of signing the contract of sale or the time of settlement for the property.
· You have been informed by the vendors that the Taxation Office has determined that their supply of this property was a taxable supply rather than GST-free as the supply of a going concern, on the basis that you were not registered or required to be registered for GST at the time of supply.
· Your agent has stated that the purchase and leasing out of this property is your first enterprise.
· At the time of acquisition you increased the rent for your tenant such that the projected GST turnover was over the GST registration turnover threshold.
Reasons for decision
1. Question number
GST-free supplies of going concerns
Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the supply of a going concern is GST-free if:
· the supply is for consideration, and
· the recipient of the supply is registered or required to be registered for GST, and
· the supplier and the recipient of the supply have agreed in writing that the supply is one of a going concern.
All three of these elements must be satisfied at the time that the supply is made.
For there to be a GST-free supply of a going concern, there must be an identifiable enterprise for the supplier to sell. It is noted that the vendors have made a supply to you of a commercial property with assignment of the leasehold to a tenant. This supply constitutes the supply of an enterprise of leasing a commercial property.
The vendors have made this supply to you for consideration. Thus one of the requirements of subsection 38-325(1) is met.
It is further noted that under the relevant clause in the contract of sale the vendor has agreed with you in writing that the supply of the property is the supply of a going concern. Thus a second of the requirements of subsection 38-325(1) of the GST Act is met.
GST registration
For the supply of this enterprise to you to be correctly regarded as a GST-free supply of a going concern you have to be registered for GST or be required to be registered for GST.
You are now registered for GST. However, at the time of the supply of the enterprise you were not registered for GST. The date of your registration is after the date of purchase of the property, and the enterprise as a whole. Thus your registration postdates the supply of the property and the enterprise.
Further, at the time of supply you did not have an enterprise.
Under section 23-5 of the GST Act you are required to register for GST if:
· your are carrying on a enterprise, and
· your GST turnover meets the registration turnover threshold, which is currently $75,000.
You may also choose to register for GST under section 23-10 of the GST Act if you are carrying on an enterprise, or intend to carry on an enterprise from a particular date, and your turnover is less than the registration turnover threshold.
Backdating of GST registration
It is noted that at the time of registration you had your registration backdated to be effective from the date of the contract of sale for the property.
Section 25-15 of the GST Act sets out the effects of backdating a GST registration, and specifically states that for the purposes of determining whether an entity has made a taxable supply or a creditable acquisition or importation, the entity is taken to have been registered from the backdated date of registration. However, section 25-15 of the GST Act does not provide for a purchaser to be taken to have been registered from the backdated date of registration for the purpose of subsection 38-325(1) of the GST Act.
Thus the backdating of a purchaser's registration where the purchaser is neither registered nor required to be registered for GST at the time of the supply will not result in subsection 38-325(1) of the GST Act being satisfied retrospectively.
Therefore as you were neither registered nor required to be registered for GST at the time of the purchase of this property and enterprise, the backdating of your GST registration has no effect in meeting the requirements of subsection 38-325(1) of the GST Act.
As not all of the requirements of subsection 38-325(1) of the GST Act are met, the purchase of this property and enterprise cannot be the supply of a going concern.
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