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Edited version of private ruling
Authorisation Number: 1011830339684
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Ruling
Subject: acquisition of a rent roll
Question
Is your purchase of a rent roll business an acquisition of a GST-free supply of a going concern?
Answer
Yes, your purchase of a rent roll business is an acquisition of a GST-free supply of a going concern.
Facts
You are a company engaged in an enterprise in the real estate leasing industry.
You have an Australian business number (ABN) and are registered for the goods and services tax (GST).
You currently operate the real estate business from your own premises.
You intend to acquire a rent roll business from a vendor who is registered for the GST.
The vendor has signed an Agreement for the Sale of Business (the Agreement) with you.
The Agreement stipulates that on settlement all records and documents relating to the rent roll business will be delivered by the vendor to you, including:
· tenancy agreements
· keys
· inspection reports
· rental bond transfer forms
· statements provided to the landlords
· correspondence files
· repair and maintenance details
As per the Agreement, the vendor will not transfer the vendor's business name, premises or contact numbers.
There is a restraint of trade for three years in the Agreement.
The Agreement contains a statement that the parties agree that the supply of the rent roll business is a supply of a going concern.
The Agreement contains a warrant that the vendor will carry on the rent roll business until settlement and on settlement supply all of the things that are necessary for the continued operation of the business.
The vendor intends to transfer all of the tenancies to you.
The vendor has a very small number of tenants physically making payments at the vendor's current business premises. The overwhelming method of payment is via direct debit.
Through an agreement between you and the vendor, you have made offers of employment to the employees who currently manage the vendor's rent roll business.
The vendor has received a private ruling from the Tax Office to state that the sale of the vendor's rent roll business to you as per the Agreement is a GST-free supply of a going concern.
Detailed reasoning
Section 9-5 of the GST Act states that you make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
(The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act. These terms are explained where they impact on this ruling.)
The Agreement outlines the sale price for the rent roll business and the supply is made as part of the vendor's enterprise. The supply is connected with Australia and the vendor is registered for GST. Therefore, paragraphs (a), (b), (c) and (d) of section 9-5 of the GST Act are satisfied.
Furthermore, the supply of the rent roll business by the vendor is not an input taxed supply under any provision of the GST Act. We will now consider whether the supply of the rent roll business to you is GST-free.
GST-free supply of a going concern
Under subsection 38-325(1) of the GST Act, the supply of a going concern is GST-free if:
(a) the supply is for *consideration; and
(b) the *recipient is *registered or *required to be registered; and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
The Agreement outlines the sale price for the rent roll business. You, as the purchaser, are registered for GST and you and the vendor have agreed in writing that the supply is of a going concern. Therefore, subsection 38-325(1) of the GST Act is satisfied.
However, for a supply to be a supply of a going concern, subsection 38-325(2) of the GST Act also needs to be satisfied.
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).
The Agreement confirms that the vendor will carry on the rent roll business until settlement, thus satisfying paragraph 38-325(2)(b). However, we need to consider the 'all things necessary' test in paragraph 38-325(2)(a).
All things necessary
You are acquiring the rent roll business from the vendor. Therefore, for the sale to be a supply of a going concern it needs to be determined whether the vendor will be supplying all the things that are necessary for the continued operation of the enterprise.
Goods and Services Tax Ruling GSTR 2002/5 explains what is a supply of a going concern.
In respect of the 'all things necessary' test paragraph 41 of GSTR 2002/5 states:
41. This term emphasises that the elements of paragraph 38-325(2)(a) must be satisfied from the perspective of the supplier. The ability of the recipient to provide some of the things necessary for the continued operation of the enterprise is not a relevant consideration…
Under the Agreement the things that will be supplied to you include tenancy agreements, keys, inspection reports, rental bond transfer forms, statements provided to the landlords, correspondence files and repair and maintenance details. Also, through an agreement with the vendor you have made offers of employment to the current employees that manage the vendor's rent roll business.
However, the Agreement does not provide for any premises to be provided to you. Also, it is not intended that premises will be made available to you as you conduct a rent roll business from your own premises.
Paragraph 90 of GSTR 2002/5 provides that where a particular premises is necessary for the continued operation of an enterprise, such premises must be supplied. Therefore, we need to consider whether, in this case, 'premises' is a necessary thing that the vendor has to supply to you in order for the rent roll business to be carried on. In our view, the rent roll business does not need to be carried on from the vendor's premises and that it can be carried on from your existing premises where you conduct your real estate leasing enterprise.
Paragraph 91 of GSTR 2002/5 provides that where an enterprise is necessarily conducted from premises but particular premises are not necessary, then suitable premises, or the right to occupy such premises, must be supplied as one of the things that are necessary for the continued operation of the enterprise.
As stated above, paragraph 41 of GSTR 2002/5 provides that we must consider what the supplier is supplying all things necessary for the continued operation of the enterprise. This is irrespective of whether you have your own premises from which you can conduct the rent roll business.
In our view, given the small proportion of tenants who attend the vendor's premises compared to the overall number of properties, premises is not one of the things necessary for the continued operation of the rent roll business.
Basing on the facts of the case, it is our view that the vendor will be supplying all the things that are necessary for the continued operation of the rent roll business, which satisfies paragraph 38-325(2)(a) of the GST Act.
As the sale of the rent roll meets the statutory definition of a 'supply of a going concern' under subsection 38-325(2) of the GST Act it will satisfy all the requirements of section 38-325 of the GST Act and the sale will be GST-free.
Consequently, the purchase of the rent roll business will be (to you) a GST-free acquisition of a going concern.
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