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Edited version of your private ruling
Authorisation Number: 1012559630643
Ruling
Subject: GST and supply of a going concern
Question 1
Is your sale of the building in which your business is situated a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No.
Relevant facts and circumstances
You operate a business as a sole trader in a building that you own. You are selling the building and are going to lease it back from the new purchaser to continue to operate your business.
The following conditions have or will be met:
· the sale is for a payment or consideration
· the purchaser is registered, or required to be registered, for GST, and
· the seller and the purchaser have agreed, in writing, that the supply is of a going concern.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
Reasons for decision
Summary
Your sale of the building in which your business is situated is not a GST-free supply of a going concern pursuant to section 38-325 of the GST Act.
Detailed reasoning
Under section 9-5, an entity makes a taxable supply if:
· it makes a supply for consideration; and
· the supply is in the course or furtherance of an enterprise that it carries on; and
· the supply is connected with Australia; and
· the entity is registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The supply will satisfy the positive limbs of section 9-5 and raises the issue of whether the supply will be a GST-free supply of a going concern.
The supply will be a GST-free supply of a going concern where the requirements of section 38-325 are met.
For a supply to be a GST-free supply of a going concern under section 38-325:
· the supply must be 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 (paragraph 38-325(2)(a)); and
- the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise) until the day of the supply (paragraph 38-325(2)(b));
· the supply must be for consideration (paragraph 38-325(1)(a));
· the recipient of the supply must be registered or required to be registered for GST (paragraph 38-325(1)(b)); and
· the supplier and the recipient must have agreed in writing that the supply is of a going concern (paragraph 38-325(1)(c)).
With particular reference to your sale, we note that paragraphs 38-325(a) and (b) require the conditions to be satisfied in relation to an 'identified enterprise'. The term 'enterprise' is defined in section 9-20 and includes 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, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.
You conduct an enterprise of your business, you are not supplying this enterprise to the purchaser; rather, you are supplying real property. The purchaser of the building will in all likelihood commence a leasing enterprise that consists of the building and the lease with you as tenant. The purchaser will commence the leasing enterprise, you will not supply it.
In summary, you are not supplying an enterprise to the purchaser and therefore your supply cannot be a GST-free supply of a going concern.
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