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Edited version of your written advice
Authorisation Number: 1012697434645
Ruling
Subject: Property development and going concern
Question
Will the sale of the Property by Entity A be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?
Answer
Yes.
Based on the information provided by Entity A, the supply of the Property will be a GST-free supply of a going concern under section 38-325 of the GST Act. This is because, on settlement date, Entity A will be supplying to the purchaser all of the things that are necessary for the continued operation of the development enterprise, being the Property, related development approvals, development application, marketing material and the assignment of Entity A's rights and obligations under the licence arrangement.
Relevant facts and circumstances
Entity A is registered for the goods and services tax (GST)
Entity A purchased the development property (Property) from Entity B for an amount.
When it acquired the Property, Entity A received from Entity B:
(a) freehold interest in the Property;
(b) development approvals relating to the Property, in particular a Ministerial development approval; for reconfiguration of a lot in stages (development permit) and operation works (preliminary approval) pertaining to a proposed master planned community over part of the Property (Ministerial Approval);
(c) a development application pertaining to the proposed development over part of the Property;
(d) the development and marketing material and various intellectual property in those materials;
(e) the intellectual property
(f) any operational works permits relating to the Property;
(g) water licences;
(h) key financial schedules as detailed in the contract.
Entity B also assigned to Entity A rights and obligations under an existing lease to a third party *Mr X) to use the Property, primarily for adjusting cattle.
In a private ruling, the Commissioner of taxation (Commissioner) ruled that Entity B's supply to Entity A was a GST-free supply of a going concern. Entity A has provided a copy of the private ruling as part of this ruling request.
Consistent with the written agreement between the parties and the Commissioner's private ruling the supply from Entity B to Entity A was treated as a GST-free supply of a going concern.
Entity A's continuing development
As noted above, Entity A acquired the Property as an enterprise.
A rebranding exercise for the development was undertaken by Entity A
Since its acquisition of the Property, Entity A has made amendments to the development approvals.
Since its acquisition of the Property Entity A has continued to perform activities in respect of the development of the Property. Entity A has provided the chronology of these activities as part of this private ruling request.
Entity A's continued licence arrangements
Entity A has also licenced the Property to Mr X under a Licence Agreement.
The original term of the Licence was three years and gives Mr X the right to:
(a) occupy the premises on the Property; and
(b) use the Property for pastoral or agricultural purposes.
Mr X makes licence payments on a monthly basis.
All the land comprising the Property was, and continues to be, the subject of the Licence Agreement between Entity A and Mr X.
Proposed Sale
Entity A has sought expressions of interest for the Property to be purchased as a development project.
The sale by Entity A would relevantly include:
(a) the Property (freehold title);
(b) development approvals (including the Ministerial Approval and all operational works approvals) relating to the Property and materials relating to the same;
(c) development applications relating to the Property and materials relating to the same;
(d) the development and marketing materials;
(e) an assignment of Entity A's rights and obligations under the licence arrangements.
Entity A is continuing to carry on its development of the Property and unless there is an attractive expression of interest from a prospective purchaser, Entity A will continue with the development of the Property themselves.
Assumptions
As Entity A have not yet identified the purchaser the following assumptions are made:
• The purchaser will provide consideration for the supply of the Property.
• The purchaser will be registered for GST on the settlement date.
• Entity A and the purchaser will agree in writing before settlement date (i.e. in the sale contract) that the supply is a GST-free supply of a going concern.
• Entity A will continue to carry on its enterprise until settlement date. For example, it will continue to contract with professional consultants as to how conditions of approval can be satisfied.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 9-5
A New Tax System (Goods and Services Tax) Act 1999 38-325
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