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Subject: GST and supply of a going concern
Question
Was the supply of your beneficial interest in the property a GST-free supply of a going concern?
Answer
No, the supply of your beneficial interest in the property was not a GST-free supply of a going concern. The supply was a taxable supply.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You owned a property which you held for the purpose of your property development enterprise.
In 2006, you entered into a contract with another entity (the purchaser) to sell the property as a going concern.
While the property was transferred to the purchaser in its entirety, the contract specified that the consideration payable by the purchaser does not include a consideration for a portion of the property. As such, the purchaser did not acquire beneficial interest in that portion of the property which at all times remained with you.
You did not undertake any activities in relation to that portion of the property after the settlement of the contract occurred or commence another enterprise which involved that portion of the property.
In 2011, you sold your beneficial interest in that portion of the property to the purchaser for a specified amount. While protracted negotiations preceded your sale of the beneficial interest, you and the purchaser did not have a written agreement for the sale. Instead, you issued a tax invoice which included GST in the price.
The purchaser is registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 and
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
Reasons for decision
Subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern.
Section 38-325 of the GST Act states:
(1) 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.
(2) 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 part of a larger enterprise).
(*denotes a term defined under section 195-1 of the GST Act).
While the portion of the property was transferred to the purchaser under the arrangement to sell the entire property as a going concern, the contract specifically excluded the supply of the beneficial interest in that portion of the property to the purchaser. As such, the subsequent supply of the beneficial interest to the purchaser was not made under that arrangement.
Therefore, we must determine whether the supply of the beneficial interest was in itself a GST-free supply of a going concern.
You supplied your beneficial interest after negotiations with the purchaser; however you did not have a written contract under which you and the purchaser have agreed that the supply was a sale of a going concern. Thus, paragraph 38-325(1)(c) of the GST Act was not satisfied.
For the purpose of this ruling, it is no longer necessary to determine whether the supply of your beneficial interest was a supply of a going concern under subsection 38-325(2) of the GST Act. Even if it was a supply of a going concern, the supply of your beneficial interest in the property was not GST-free under subsection 38-325(1) of the GST Act.
The supply of your beneficial interest in the property satisfied the requirements in paragraphs
9-5(a) to 9-5(d) of the GST Act. That is, you made the supply for consideration and in the course of carrying on your enterprise. The supply was connected with Australia; and you are registered for GST. The supply was not input taxed or GST-free. Therefore, the supply of your beneficial interest in the property was a taxable supply.
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