Edited version of your private ruling

Authorisation Number: 1012452913118

Ruling

Subject: GST and the GST free supply of real property

Question

Will the supply of the property by the vendor be a GST free supply of a going concern?

Answer

Yes.

Relevant facts and circumstances

On ddmmyyy, the purchaser entered into a contract to acquire real property. Both the vendor and the purchaser are registered for GST.

The vendor supplied the following evidence of the activities that they had conducted in regards to the property:

a. The contract for the acquisition of the Property

b. An email following up on various charges in relation to the development.

c. A contract with Entity C for them to conduct an environmental noise assessment on the Property.

d. In 2012 Entity C was contracted to undertake soil tests and related practical research in relation to the property

e. Relevant development approvals

f. 'Build Works' approval

g. The vendor has maintained the approvals in place and facilitated the pending submission of an additional operational works approval over the land.

The Sale Contract documentation sets out that:

The Property being sold comprises.

Lot A contains an abandoned dwelling

Lot B Vacant land

Lot C Vacant land

Lot D Vacant land

Clause X.1 provides that:

The Buyer and the Seller acknowledge that upon the signing of this Contract they have each received a copy of the Terms of Contract for Houses and Residential Land containing the standard conditions of sale with respect to this Contract (hereinafter referred to as the "Standard Conditions").

The GST clause provides that:

"X.1 GST …….

(Y) This sale and Supply is a Going Concern and the following provisions apply:

(a) the Purchase Price does not include any amount for GST;

(b) the parties agree the Supply of the Property is a Supply (or part of a Supply) of a Going Concern;

(c) the Seller warrants that between the Contract Date and the Settlement Date the Seller will carry on the use the Land as at the Contract Date;

(d) the Buyer warrants that at the Settlement Date it is registered or required to be registered under the GST Act.

Clause Z states:

Assignment of Intellectual Property Rights

Y.1 With effect from Settlement, the Seller assigns to the Buyer (to the extent that it is legally assignable) all of the Seller's right, title and interest in and to all and any approvals issued by the council in respect of the property together with all consultants reports, plans, drawings and other material previously supplied by third parties to the Seller with respect to the property and the Seller warrants (with effect from the Settlement Date) that the Seller has made payment of all amounts due and owing to such third parties with respect to the preparation of the aforesaid material

Relevant legislative provisions

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

Section 9-20 of A New Tax System (Goods and Services Tax) Act 1999

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

Reasons for decision

The term 'supply of a going concern' is a statutory term which is defined for the purposes of Subdivision 38-J in subsection 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to mean 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 carried on by the supplier).

An arrangement such as the contract between the vendor and the purchaser will satisfy paragraph 38-325(2)(a) of the GST Act where following elements are present:

§ there is an enterprise

§ 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.

Enterprise

The term 'enterprise' is defined in subsection 9-20(1) of the GST Act and includes, amongst other things, an activity or series of activities done in the form of a business or, in the form of an adventure or concern in the nature of trade.

The vendor acquired the property and then entered into contacts with various parties for noise assessment tests, soil tests and various other services including contracting for certain town planning services to gain approvals for the continuing development of the property. These activities would meet the criteria for an enterprise. Therefore the vendor's activities in relation to the property are considered to meet the definition of a property development enterprise.

Supplier supplies to the recipient all things that are necessary

The term 'supplier supplies' emphasises that the elements of paragraph 38-325(2)(a) of the GST Act must be satisfied from the supplier's perspective. This is because the supplier must supply all of the things that are necessary for the continued operation of the identified enterprise to the purchaser.

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) explains what is a 'supply of a going concern' for the purposes of Subdivision 38-J of the GST Act. It also explains when the 'supply of a going concern' is GST-free for the purposes of the Subdivision

It provides at paragraph 75 that:

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.

As the vendor has undertaken, in the contract of sale to supply to the purchaser the assets of the enterprise including the property, together with all the relevant approvals and rights and interests associated with their enterprise and the 'operating structure including relevant contracts they have supplied to the purchaser all of the relevant rights and property to enable the purchaser to continue the enterprise. Therefore the element of the 'supplier supplies' will be satisfied.

Will carry on the enterprise until the day of the supply

As set out above, the contract sets out that the purchaser will be acquiring from the vendor all relevant approvals and documentation to allow it to carry on the activity that the vendor began. In addition the vendor warrants in the sale contract that:

'between the Contract Date and the Settlement Date the Seller will carry on the use of the Land as at the Contract Date.'

Therefore as all the criteria of subsection 38-325(2) of the GST Act have been satisfied the supply will be a supply of a going concern.

GST free supply of a going concern

Subsection 38-325(1) of the GST Act provides that where there is a supply of a going concern it will be 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.

As the supply is for consideration, the recipient is registered for GST and both parties have agreed in writing in the sale contract that the supply will be a GST free supply of a going concern the supply of the property and relevant approvals, rights and interests will be a GST free supply of a going concern.

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