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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012224758074

Subject: GST and the sale of a leased commercial property

Question:

Will the sale of your Commercial Property A (A), which is currently leased to a related entity, be subject to goods and services tax (GST)?

Advice

No, the sale of A will be a GST-free supply of a going concern.

This ruling applies for the following periods:

NA

The scheme commences on:

NA

Relevant facts and circumstances

Our decision is based on the following facts.

The unsigned contract for the sale of A states:

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 - section 9-20.

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

Reasons for the decision

Trusts and trustees

Paragraphs 71 -78 of Miscellaneous Taxation Ruling MT 2006/1 - The New Tax System - the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) refer to trustee of a trust or superannuation fund and states:

Taxable Supply

Section 9-5 of the GST Act states:

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

* To find definitions of asterisked terms, see the dictionary, starting at section 195-1.

We consider that if the proposed sale of A goes ahead with the assignment of the lease to the purchaser, you will supply a leasing enterprise to the purchaser.

You will make the supply of the leasing enterprise for consideration. You will make the supply in the course or furtherance of your leasing enterprise. The supply is connected with Australia as the underlying property is located in Australia. You are registered for GST as trustee for the superannuation fund. Therefore, you will satisfy paragraphs 9-5(a) - (d) of the GST Act.

The supply of a leasing enterprise is not an input taxed supply under any provision of the GST Act.

However, it is necessary to consider whether your supply of a leasing enterprise will be a GST-free supply of a going concern.

GST-free supply of a going concern

The supply will be a GST-free supply of a going concern where the requirements of section 38-325 of the GST Act are met.

Subsection 38-325 (2) of the GST Act states that a supply of a going concern is a supply under an arrangement under which:

Enterprise

Paragraph 29 of Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) states:

Once the enterprise is identified, it is the supply in relation to that enterprise that must meet the requirements of subsection 38-325(2) of the GST Act.

The term enterprise is defined in section 9-20 of the GST Act to include an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.

Furthermore, paragraph 6 of Goods and Services Tax Determination - Goods and services tax: Does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 2006/6) provides guidance to determine when an entity is carrying on an enterprise and states:

We consider that you are carrying on a leasing enterprise at A and B. It is necessary to determine whether your leasing activities at A can be separated from your leasing activities at B and be treated as a separate leasing enterprise.

Enterprise operating independently

Paragraphs 21 - 40 of GSTR 2002/5 explain that where an enterprise is part of a larger enterprise, it must be capable of operating as an independent enterprise. Where it cannot operate independently, the whole of the activity carried on by the supplier will be the enterprise and if that is not supplied, the supply will not be the supply of a going concern.

Paragraph 24 of GSTR 2002/5 provides an example to demonstrate that a leased commercial property is capable of being classified as an enterprise in its own right. It states:

Example 1: fully tenanted building

A has been leased on a continuous basis. You have informed us that on the expiry of the current lease on 30 June 2012, you will enter into a new lease with the tenant for the period 1 July 2012 to 30 June 2013. Therefore, it is our view that the conduct of leasing activities at A is itself an enterprise as defined in section 9-20 of the GST Act.

Going concern - carrying on an enterprise until the day of supply

To meet the remaining conditions of subsection 38-325(2) of the GST Act, we need to consider whether you will carry on the enterprise until the day of the supply.

You have provided a proposed unsigned contract to sell A, which states:

Paragraph 58 of GSTR 2002/5 refers to the supply of right to occupy premises and states:

You have stated that you will be carrying on the leasing enterprise until the day of the supply (settlement), which will occur not more than 42 days from the date of signing of the contract.

Where you supply the freehold property with a current lease, you will meet the necessary requirements of section 38-325(2) of the GST Act in carrying on the leasing enterprise until the day of supply.

Going concern - supply of all things necessary for the continued operation of the enterprise

What remains to be determined is whether the supply is under an arrangement under which you will supply all the things that are necessary for the continued operation of the enterprise.

Your contract has included a statement to include the commercial lease agreement saying it will be subject to an existing tenancy.

Paragraph 80 of GSTR 2002/5 refers to all things necessary and states:

Where you are selling the freehold title of the property along with assigning the existing lease agreement in respect of which the tenants occupy the property for a specific period, you will have supplied all the things necessary to the purchaser for the continued operation of your leasing enterprise.

The requirements of paragraph 38-325(2) (a) and 38-325(2)(b) of the GST Act will be satisfied and the sale of your leasing enterprise in respect of A will be a supply under an arrangement.

GST- free supply of a going concern

What remains to be considered is whether the supply is a GST- free supply of a going concern as outlined in subsection 38-325 (1) of the GST Act, which states:

From the facts provided, you have a proposed contract for the sale of A for $ X. The purchaser is registered for GST. You and the purchaser have a proposed contract, which provides that the parties agree that the supply of the property is a supply of a going concern.

We consider that your proposed contract terms, will meet the requirements of paragraph 38-325(1)(a) and 38-325(1)(b) of the GST Act when completed.

Paragraph 38-325(c) of the GST Act will also be met when you and the purchaser sign the contract, securing your agreement in writing.

From the information provided, the leasing activities at A constitute an independent enterprise. It can be sold independently from your leasing enterprise carried on at B.

If the contact is fulfilled with the assignment of the existing lease to the purchaser, then all the things necessary for the continuation of the leasing enterprise at A will be supplied at settlement. Accordingly, the supply will be treated as a GST-free supply of a going concern.


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