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Ruling

Subject: acquisition of property

Question:

Is the acquisition of a commercial property a GST-free acquisition of a going concern?

Answer:

The acquisition of the property will be a GST-free acquisition of a going concern where all of the conditions set out on section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

The acquisition will not be an acquisition of a GST-free supply of a going concern if any of the conditions set out in section 38-325 of the GST Act is not satisfied.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are carrying on an enterprise and are registered for the goods and services tax (GST).

You intend to purchase a commercial property.

The property is used as a restaurant and it is currently vacant.

The building has the facilities for operating a restaurant with stove, cool room, bar counter, etc.

You were informed by the vendor that the property was previously leased and after the lease period expired, the former tenant did not want to take up the option of extending the lease.

The vendor has also informed you that the vendor is actively marketing the property for leasing through real estate agents.

Further, the vendor has indicated that the sale will be on the basis of a going concern.

Thus, in the event you purchase the property, you and the supplier will agree in writing that the supply is that of a going concern.

If the sale goes through, you will lease the property to a lessee who will operate a restaurant on the premises.

Relevant legislative provisions

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

Reasons for decision

Under subsection 38-325(1) of the GST Act a supply of a going concern is GST-free if:

· the supply is for consideration, and

· the recipient is registered or required to be registered, and

· the supplier and the recipient agrees in writing that the supply is a going concern.

In this case you are purchasing the property for consideration, you are registered for the GST and you and the supplier will agree in writing that the supply is that of a going concern.

Subsection 38-325(2) of the GST Act provides two requirements that must be satisfied for a supply of an enterprise to be that of a going concern. These are:

· the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and

· 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)

Goods and Services Tax Ruling GSTR 2002/5 provides the Commissioner's view on the interpretation of section 38-325 of the GST Act. Paragraph 74 and 75 of GSTR 2002/5 states:

74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.

75. Two elements are essential for the continued operation of an enterprise:

· the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

· the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

In this case the identified enterprise of the supplier appears to be that of a leasing enterprise. You are purchasing the premises. For the supplier to supply you with all things necessary for the continued operation of the leasing enterprise, the supplier must assign the existing leases. However, the premises is not currently leased but the supplier has informed you that the premises is being actively marketed for leasing.

Paragraph 151 of GSTR 2002/5 states, in part, as follows:

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 during the period of temporary vacancy when a new tenant is being actively sought by the building owner…….

Thus, it is not necessary for the premises to be currently leased (as in this case) for it to be an enterprise the supplier is carrying on as long as it is actively marketed for that purpose by the supplier. You as the purchaser, however, cannot ensure that this is being done. You also cannot ensure that the supplier will carry on the enterprise till the day of the supply.

Therefore, for the acquisition will be a GST-free supply of a going concern only if the supplier satisfies all of the conditions set out in subsection 38-325(2) of the GST Act.

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