Edited version of private ruling

Authorisation Number: 1011822368062

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Ruling

Subject: Supply of a going concern

Question 1

Are you making a GST-free supply of a going concern, within the meaning of subsection 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you sell a residential property development enterprise?

Answer

Yes

Relevant facts and circumstances

· You are registered for GST.

· Following the receipt of a written offer, you intend to supply your entire residential property development enterprise to Entity A or its nominee.

· You have provided the following description of your current situation:

· You carry on the enterprise of developing land at a specific site.

· The first stage of the development commenced recently.

· You have had negotiations with Entity B to jointly develop the land owned by you and an adjoining parcel of land owned by Entity B and will enter into a development agreement with Entity B in relation to this. You are also negotiating a project management agreement with Entity B and Entity C.

· In addition to the supply of the land and your interest in the development agreement and the project management agreements, as part of your supply of your residential property development enterprise, you will facilitate the transfer to Entity A of:

(a) development approvals;

(b) design plans including civil engineering and infrastructure plans;

(c) civil works contracts awarded to third parties;

(d) marketing materials including domain names and potential customer information;

(e) trademarks and other intellectual property;

(f) rights of access.

· There are a small number of lots that are part of the sales that do not form part of the land to be developed with Entity B but are being separately developed by you. Negotiations are ongoing in relation to how the transfer of these lots will be treated.

· One possible scenario is that all of these lots, together with any uncompleted contracts for sale, will be transferred to Entity A.

· Alternatively, Entity A will be appointed sales agent in respect of any of these lots which are not subject to a contract for sale, or which are subject to a contract for sale but have not settled at the time of the supply of your residential property development enterprise to Entity A. In the event that any of these lots remain unsold more than four months after the day of supply then these properties will be sold to Entity A at that time.

· You have stated that:

· The supply of the residential property development enterprise will be made for consideration.

· Entity A is registered for GST. If the enterprise is supplied to a nominee of Entity A, that nominee will be registered or required to be registered for GST.

· The parties to the sale will agree in writing in the contract that the supply of the residential development enterprise is the supply of a going concern.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J.

Summary

You will make a GST-free supply of a going concern within the meaning of subsection 38-325 of the GST Act when you carry out the arrangements as described in your private ruling application.

Detailed reasoning

The supply of a going concern is GST-free where the requirements of subsection 38-325(1) of the GST Act are met.

In this regard, you have confirmed that:

· the supply will be made for consideration; and

· Entity A or its nominee are registered or required to be registered for GST; and

· the parties will agree in writing that the supply of the residential development enterprise is the supply of a going concern.

The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act, which states:

A supply of a going concern is a supply under an arrangement under which:

(a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and

(b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

* Asterisk denotes a term defined in the GST Act

GST Ruling 2002/5 (GSTR 2002/5) provides guidance on the application of the going concern provisions.

Paragraph 29 of GSTR 2002/5 provides that it is necessary to identify the relevant enterprise in order to determine if all things necessary for the continued operation of an enterprise are transferred to the recipient of a supply.

You have stated that you consider that the relevant enterprise is the residential property development enterprise of developing the land specified.

This activity satisfies the definition of enterprise within section 9-20 of the GST Act.

Paragraph 75 of GSTR 2002/5 provides that there are two elements that are essential for the continued operation of an enterprise, being:

· the assets necessary for the continued operation of the enterprise; and

· the operating structure and process of the enterprise.

In addition to supplying land, you will also be supplying your interest in the development and project management agreements, as well as development approvals, design plans, civil works contracts, marketing materials, trademarks and other intellectual property and rights of access.

It is considered that in the circumstances described here, you will supply all things necessary for the continued operation of the residential property development enterprise.

Paragraph 38-325(2)(b) of the GST Act requires that the supplier will carry on the enterprise until the day of the supply.

The offer made by Entity A requires that the enterprise be carried on by you until the day of supply. You have stated that you will continue to develop any lots under development until settlement and that you will use reasonable endeavours to enable the uninterrupted operation of your enterprise by Entity A.

It is therefore considered that you will carry on the residential property development enterprise until the day of supply, and this advice is based on that assumption.

In the circumstances described above, you will make a GST-free supply of a going concern of a residential property development enterprise.

Sales transactions that have already been completed with third parties do not form part of the supply of the going concern. Past transactions that have been finalised are not part of an ongoing enterprise.

Where Entity A acts as sales agent in relation to lots that are not subject to a contract for sale, or which are subject to a contract for sale but have not settled at the time of the supply of the enterprise, this will constitute a separate supply of services by Entity A which will be subject to GST.

If you later supply Entity A any lots that have not been sold within four months of the supply of your enterprise, this will constitute a separate supply.

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