Edited version of your written advice

Authorisation Number: 1012681339799

Ruling

Subject: Sale of leased commercial premises

Question

Is the sale of the property, situated at X, 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

Yes, the sale of the property is a GST-free supply of a going concern pursuant to section 38-325 of the GST Act.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

• The Purchasers are a partnership (hereinafter also referred to as the Purchaser).

• The Purchaser is registered for the goods and services tax (GST) with effect from 30 June 2014.

• The Purchaser has an Australian business number.

• The Purchaser intends to buy a commercial property (hereinafter also referred to as the Property).

• The Property is leased to one of the partners of the partnership who operates a pharmacy under a different Australian business number (ABN).

• The Purchaser obtained an ABN and registered for the GST for the purpose of buying the property as a GST-free going concern.

• The Vendors are a partnership (hereinafter also referred to as the Vendor) and own the Property as tenants in common and in equal share.

• The Vendor registered for the GST from 1 July 2014.

• The Vendors also have an ABN.

• The Vendor is carrying on an enterprise of leasing.

• The Property is an asset of the leasing enterprise.

• The Vendor will supply to the Purchaser all of the things that are necessary for the continued operation of the enterprise of leasing the Property. These things, in the main, are the transfer of title to the Property and the transfer of the lease to the Purchaser.

• The Vendor will carry on the enterprise of leasing until the day of the supply.

• The Vendor and the Purchaser will agree in writing, on or before the supply, that the supply of the Property is that of a going-concern.

• The Purchaser and the Vendor are requesting for a ruling on the GST status of the supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-325.

A New Tax System (Goods and Services Tax) Act 1999 section 165-5.

Reasons for decision

Section 9-5 of the GST Act states 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 asterisks in this ruling indicate terms defined under section 195-1 of the GST Act. These terms are explained where they impact on this ruling.)

The supply of the leased commercial premises (the Property) will be made for consideration and in the course or furtherance of the Vendor's enterprise. The supply is connected with Australia and the Vendor is registered for GST. Therefore, paragraphs (a), (b), (c) and (d) of section 9-5 of the GST Act are satisfied.

Furthermore, the supply of the Property by the Vendor is not an input taxed supply under any provision of the GST Act. We will now consider whether the supply of the Property is GST-free under the going concern provisions.

Section 38-325 of the GST Act outlines the conditions that must be satisfied for a supply of a going concern to be GST-free. Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) gives the Australian Taxation Office view on the interpretation of this section.

GST-free supply of a going concern

Under subsection 38-325(1) of the GST Act, 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.

The sale of the property will be for consideration. The Purchaser is registered for GST. The contract of sale between the Vendor and the Purchaser will state, and you have confirmed it as a fact, that the sale is a going concern. Therefore, subsection 38-325(1) of the GST Act will be satisfied.

However, for a supply to be a supply of a going concern, subsection 38-325(2) of the GST Act also must be satisfied.

The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act, which states:

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 facts of this case state that the Vendor will carry on the leasing enterprise of the Property until the transfer of the ownership, and, therefore, will satisfy paragraph 38-325(2)(b) of the GST Act. We now need to consider whether 'all things necessary' test in paragraph 38-325(2)(a) of the GST Act will be satisfied on the day of the settlement.

All things necessary

For a sale to be a supply of a going concern it needs to be determined whether the Vendor will supply all the things necessary for the continued operation of the enterprise the Vendor is currently carrying on.

In respect of the 'all things necessary' test paragraph 41 of GSTR 2002/5 states:

This term emphasises that the elements of paragraph 38-325(2)(a) must be satisfied from the perspective of the supplier.…

From the facts provided, it is stated that all of the things that are necessary for the continued operation of the leasing enterprise will be supplied to the Purchaser on the day of the settlement. These are, in the main, the Property and the assignment of the current lease.

Based on these facts, it is our view that the Vendor would be supplying all the things that are necessary for the continued operation of the leasing enterprise and, therefore, satisfy paragraph 38-325(2)(a) of the GST Act on the date of supply (that is, at settlement).

Therefore, the supply of the Property and the assignment of the lease will meet the statutory definition of a 'supply of a going concern' under subsection 38-325(2) of the GST Act.

As both subsections 38-325(1) and (2) of the GST Act will be satisfied on the day of the supply, the supply of the Property will be GST-free as a supply of a going concern.

We note that the Purchaser is a partnership, and that one of the partners (a registered entity) is the current lessee of the Property. We also note that the Purchaser registered for the GST for the purpose of acquiring this Property under the going concern provision.

Please Note

Division 165 of the GST Act deals with anti-avoidance. The object of the Division is to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds.

If the dominant purpose or principal effect of a scheme is to give an entity such a benefit, the Commissioner may negate the benefit an entity gets from a scheme by declaring how much GST or refund would have been payable , and when it would have been payable, apart from the scheme.

This Division is aimed at deterring artificial or contrived schemes.

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