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Edited version of your private ruling
Authorisation Number: 1012539096107
Ruling
Subject: GST and supply of a going concern
Question
Is the supply, of the property, a GST-free going concern?
Answer
Yes, the supply of the property is a GST-free going concern.
Relevant facts:
You are registered for goods and services tax (GST).
You (as landlord), the developer, the tenant and the guarantor entered into an agreement for lease in relation to a part of the property. The developer is a related entity of yours. The guarantor and tenant are not related entities of yours but are related with each other.
At settlement the following documents were entered into:
(a) a contract of sale between you (as vendor) and the purchaser in its capacity as custodian for the trustee;
(b) a development agreement between the developer, the trustee, the Covenantor and the developer guarantor; and
(c) an income support and leasing deed between the developer, the trustee and the developer guarantor for other parts of the property.
Under the contract of sale you agreed to sell and the purchaser agrees to buy the property. The property includes the land, buildings and the plant and equipment.
The income support and leasing deed is in relation to part of the property.
The contract of sale states:
Going concern
(a) The Vendor and the purchaser agree that:
(i) the Property is sold as; and
(ii) the Price has been calculated on the basis that this transaction constitutes, the Supply of a Going Concern.
(a) Each party warrants to the other that it is registered or required to be registered for GST within the meaning of the GST Act and will be registered or required to be registered up to and including the date on which Settlement occurs.
(b) The Vendor agrees that it will continue to carry on the Enterprise of leasing the Property conducted immediately before the Day of Sale, until the day of supply of that Enterprise to the Purchaser, and so far as the Vendor is aware, the Property is all of the things necessary for the continued operation of the relevant Enterprise.
When fully developed the property will contain two other buildings.
The purchaser is registered for GST.
Relevant legislative provisions:
A New Tax System (Goods and Services Tax) Act 1999 Section 38-325
Reasons for decision
Subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply of a going concern is GST-free if:
· the supply is for consideration
· the recipient is registered or required to be registered for GST, and
· the supplier and the recipient have agreed in writing that the supply is of a going concern.
Subsection 28-325(2) of the GST Act provides that a supply is a supply of a going concern if it is made under an arrangement under which:
· 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).
The supply of the property has been made for consideration. The recipient (purchaser) is registered for GST and clause 2.2 of the contract for sale stipulates that the supply is of a going concern. As such, subsection 38-325(1) of the GST Act is satisfied.
Paragraph 151 of Goods and Services Tax Ruling GSTR 2002/5 states:
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. However, where a building has not previously been leased to a tenant, but is being actively marketed, an 'enterprise of leasing' is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building.
You entered into an agreement for lease with the tenant in relation to part of the property and this agreement for lease was assigned to the purchaser on settlement date. You have not entered into an agreement for lease in relation to a part of the property, nor have that part of the property been previously leased. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building. In relation to part of the property the building was not occupied by a tenant at settlement, however an agreement for lease was entered into and therefore it is considered you were carrying on a leasing enterprise in relation to part of the property.
Whilst it is considered that you were actively marketing part of the property for lease, you had not entered into an agreement for lease or any other lease agreement with a prospective tenant. Part of the property has never been leased previously. As such, it cannot be considered that a leasing enterprise is being carried on in relation to this part of the property.
However, it is considered that the leasing enterprise was being carried on as part of the larger development enterprise. You are carrying on a development enterprise up until the day of supply. On the day of supply a development agreement was entered into whereby the trustee for the purchaser appointed the developer to develop the land carrying out the works and to complete the development. You facilitated this arrangement. As such, it is considered that a development enterprise was being carried on up until the day of supply of the property. Therefore, you satisfy subsection 38-325(2) of the GST Act and the supply is of a going concern.
As previously mentioned, you also satisfy subsection 38-325(1) of the GST Act, as such you are making a GST-free supply of a going concern when you supply the property.
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