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Edited version of your private ruling
Authorisation Number: 1012526586874
Ruling
Subject: GST and the acquisition of a going concern
Question 1
Did the entity make a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 for the purchase of the property?
Answer
No, the entity did not make a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 for the purchase of the property. This is because the supply of the property was GST-free as the supply of a going concern.
Relevant facts and circumstances
The entity entered into a contract for the purchase of property for an amount of money.
At the time of settlement, both vendor and the purchaser were registered for GST.
The property was sold subject to a lease.
The contract states that the sale was 'GST-free because the sale is the supply of a going concern under section 38-325'.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 11-5.
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
Reasons for decision
A purchase is a creditable acquisition if is satisfies section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):
11-5 What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply; and
(d) you are registered, or required to be registered.
In order for a purchase to be a creditable acquisition, the supply of it must be a taxable supply under section 9-5 of the GST Act, amongst other things. Section 9-5 of the GST Act states that a supply is not a taxable supply to the extent it is GST-free. Relevantly, the supply of a going concern is GST-free under section 38-325 of the GST Act:
38-325 Supply of a going concern
(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.
(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).
The sale of the property 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 have agreed in writing that the supply is of a going concern; and
· the supplier supplies to the recipient all of the things necessary for the continued operation of an enterprise; and
· the suppliers carries on that enterprise until the day of the supply.
Consideration is defined by section 9-15 of the GST Act and includes 'any payment, or any act or forbearance, in connection with a supply of anything'. The sale of the property was for the payment of an amount of money and was therefore 'for consideration'.
The entity was registered for GST at the time of the purchase.
The contract of sale stipulates in writing that the sale is of a going concern. Goods and Services Tax Ruling GSTR 2002/5 provides guidance on supplies that are GST-free under section 38-325 of the GST Act. In relation to the requirement that the supplier and recipient must agree in writing, paragraph 181 of GSTR 2002/5 states:
181. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, …
The contract of sale for the property satisfies the requirement that the supplier and recipient must agree in writing that the supply is of a going concern.
The supplier must supply all of the things that are necessary for the continued operation of an enterprise in order for the supply to be GST-free under section 38-325 of the GST Act. Enterprise is defined by section 9-20 of the GST Act and includes, at paragraph 9-20(1)(c) '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…'. The supply of real property by way of lease is an enterprise for the purposes of the GST Act. The enterprise (whether or not part of a larger enterprise) carried on by the vendor is the lease of the property. GSTR 2002/5 explains that the recipient must be put in a position to continue the enterprise being supplied:
72. The term 'necessary' incorporates every attribute of an enterprise that is essential for the continued operation of the 'identified enterprise'. The things that are 'necessary' will depend on the nature of the enterprise carried on and the core attributes of that enterprise. The term 'all of the things that are necessary' does not refer to every conceivable thing which might be used in the 'identified enterprise'. Access to environmental factors, for example, access to public roads, public telephone systems and postal services, are not ordinarily things which must be supplied by the supplier.
73. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing. For example, a boat may be essential to the conduct of the businesses of a professional fisherman, a water-ski instructor, a deep-sea diving instructor or a repairer of underwater structures because, in most instances, the relevant business could not be conducted at all without a boat.8 The supplier must supply the boat for the continued operation of the enterprise.
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.
The things necessary to carry on the leasing enterprise include the property and the lease and these have been supplied by the vendor to the purchaser.
As the sale of the property was subject to the ongoing lease, the supplier has continued to carry on the enterprise until the day of the supply.
Therefore, the sale of the property satisfies all of the requirements under section 38-325 and is the GST-free supply of a going concern.
As the supply of the property was a GST-free supply, the entity did not make a creditable acquisition of the property.
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