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Ruling

Subject: goods and services tax (GST) and sale of a property

Question

Will GST be payable on your sale of the property?

Answer

Yes

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are registered for GST.

You are a complying superannuation fund.

You previously leased out a factory property located in Australia for a number of years.

There is no lease currently in place. The property is now vacant.

You have not actively marketed the property for lease during the current period of vacancy.

You have not refurbished the property or done other activities during the current period of vacancy.

You will sell the property to a GST registered entity.

A cross has been placed in the 'yes in full' box in the sale contract next to the words 'GST: Taxable supply'.

A cross has not been placed in the box in the sale contract next to the words 'GST-free because the sale is the supply of a going concern'.

You will continue to lease out other properties after you sell the property in question.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(da)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision

Summary

GST will be payable on your sale of the property because:

· you will supply the property, by way of sale, for consideration

· this supply will be made by you in the course or furtherance of your enterprise

· this supply will be connected with Australia as the property is located in Australia

· you are registered for GST, and

· your sale of the property will not be GST-free or input taxed supply.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that

· you *carry on; and

· the supply is *connected with Australia; and

· 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.

(*Denotes a term defined in section 195-1 of the GST Act)

In your case, you will satisfy the requirements of paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. You will supply the property, by way of sale, for consideration. This supply will be connected with Australia as the property is located in Australia. You are registered for GST.

There are no provisions in the GST Act under which your sale of the property will be input taxed.

Therefore, what remains to be determined is whether your sale of the property will be a supply you make in the course or furtherance of an enterprise that you carry on and whether the sale will be GST-free.

Enterprise

Enterprise is defined in subsection 9-20(1) of the GST Act to include:

· leasing out property on a regular or continuous basis (paragraph 9-20(1)(c))

· activities carried on by a trustee of a complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund (paragraph 9-20(1)(da)).

You have leased out the property in question on a regular or continuous basis. Therefore, you have carried on a property leasing enterprise. You used the property in that enterprise.

Furthermore, the activities of a complying superannuation fund are an enterprise and you are a complying superannuation fund. Therefore, all of your activities are enterprise activities under paragraph 9-20(1)(da) of the GST Act.

Hence, your sale of the property will be a supply you make in the course or furtherance of an enterprise. Therefore, the requirement of paragraph 9-5(b) of the GST Act will be satisfied.

GST-free supply of a going concern

A sale of a going concern is GST-free where the requirements of subsection 38-325(1) of the GST Act are satisfied. Subsection 38-325(1) of the GST Act states:

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.

Subsection 38-325(2) of the GST Act defines 'supply of a going concern'. It 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 carried 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).

Paragraph 150 of Goods and Services Tax Ruling GSTR 2002/5 provides guidance on paragraph 38-325(2)(a) of the GST Act. It states:

150. A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating.

GSTR 2002/5 provides that, generally, all of the things that are necessary for the continued operation of a leasing enterprise include the supply of the property and the benefit of the covenants under a lease.

Paragraph 151 of GSTR 2002/5 (which is under the heading 'Continued operation') discusses the situation where a property was previously leased to a tenant and a new tenant is being actively sought by the owner during the period of temporary vacancy. It states:

151. The activity of leasing a building which has previously been leased to a tenant remains an enterprise of leasing for the purposes of section 9-20 of the GST Act during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, where a building has not previously been leased to a tenant but is being actively marketed, an enterprise of leasing is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building.

Paragraph 153 of GSTR 2002/5 (which is under the heading 'Continued operation') provides that the requirement that vacant floors in a multi storey building be actively marketed for lease will not apply in certain situations. It states:

153. In the course of conducting an enterprise of leasing a building, certain floors may be unavailable for lease temporarily while repairs, refurbishments or other activities requiring vacancy take place. The requirement that vacant floors be actively marketed will not apply to those floors for the period during which the activities are taking place.

You have operated a leasing enterprise from the property.

However, you will not satisfy the requirement that the 'supplier supplies to the recipient all of the things necessary for the continued operation of an enterprise', as:

· you are not currently leasing out the property

· you have not actively marketed the property for lease during the period of the current vacancy

· you have not refurbished the property or done other activities during the current period of vacancy; and

· the process of selling the property does not constitute the operation of a leasing enterprise.

Hence, you will not satisfy the requirement of paragraph 38-325(2)(a) of the GST Act.

As you will not satisfy all of the requirements of section 38-325(2) of the GST Act, you will not supply a going concern.

Therefore, you will not make a GST-free supply of a going concern under subsection 38-325(1) of the GST Act.

There are no other provisions in the GST Act under which your sale of the property will be GST-free.

As all of the requirements of section 9-5 of the GST Act will be satisfied, you will make a taxable supply of the property when you sell it. Hence, GST will be payable on your sale of the property.

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