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Edited version of your private ruling
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Ruling
Subject: GST and supply of a going concern
Question
Will you be making a supply of a going concern when you sell your property?
Answer
Yes, you will be making a supply of a going concern when you sell your property.
Relevant facts and circumstances
You are registered for Goods and Services Tax (GST).
You acquired a leasehold interest of a crown land (property) post July 2000.
A few months after your acquisition of the leasehold interest, you entered into a commercial leasing agreement with a third party. The lease is for a number of years.
More than half a year later, you entered into an agreement to sell your interest in the property to the purchaser.
The sale is subject to existing tenancies.
The parties agreed in writing that the supply is of a going concern.
The purchaser is registered for GST.
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 38-325.
Reasons for decision
Taxable supply
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides 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 asterisk denotes a defined term in the GST Act.
In your case, the supply of the property to the purchaser will be for consideration, it will be made to the purchaser in the course of an enterprise carried on by you, you are registered for GST and the supply is connected with Australia.
Hence, the supply of the property by you to the purchaser, which is subject to a lease will be a taxable supply under section 9 -5 of the GST Act; unless this supply satisfied the requirements of a GST-free supply of a going concern under section 38-325 of the GST Act or an input taxed supply under subdivision 40-C of the GST Act.
As it is a commercial property, the supply by you will not be an input taxed supply.
Supply of a going concern
Subsection 38-325(1) 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.
Subsection 38-325(2) of the GST Act states:
(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 a part of a larger enterprise carried on by the supplier).
Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) considers the meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise'. In particular, paragraph 80 of GSTR 2002/5 states:
The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.
Further, Paragraph 108 of GSTR 2002/5 refers to the supply by a lessor of the benefits of covenants under a lease. All of the things necessary for the continued operation of a leasing enterprise include the supply of the property and the covenants (lease).
In your case, the property is leased to a third party under the commercial lease agreement.
Under the contract of sale you have warranted that you will carry on the leasing enterprise until the day of supply. This will satisfy the requirements of paragraph 38-325(2)(b) of the GST Act. It then remains to be determined whether the supply is under an arrangement under which the supplier supplied all the things that are necessary for the continued operation of the leasing enterprise.
Based on the information provided, on completion date, the purchaser will assume the effective control and possession of the commercial property, subject to the existing lease (leasing enterprise). Accordingly, you will be able to supply to the purchaser the benefit of the covenants which are necessary for the continued operation of the existing enterprise of the property. Thus, the supply will satisfy the requirements of paragraph 38-325(2)(a) of the GST Act.
Accordingly, the supply of the property to the purchaser will satisfy all the requirements under paragraphs 38-325(2)(a) and (b) of the GST Act. Hence, it will be a supply of a going concern under subsection 38-325(2) of the GST Act.
Consequently, the supply of the property to the purchaser will be a GST-free supply of a going concern under subsection 38-325(1) of the GST Act as it will satisfy all the requirements of that subsection.
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