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Edited version of your written advice
Authorisation Number: 1012699999421
Ruling
Subject: Sale of commercial property
Question
Is the sale of the tenanted commercial property a GST-free supply of a going concern?
Answer
Yes, the sale of the tenanted commercial property is a GST-free supply of a going concern, where all of the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied on the day of the supply (that is, on the day of settlement).
This ruling applies for the following periods:
Not applicable in this case
The scheme commences on:
Not applicable in this case
Relevant facts and circumstances
• You are a company registered for the goods and services tax (GST) and are carrying on an enterprise of leasing commercial property.
• You own a commercial property located in Australia (hereinafter referred to as the Property).
• The Property is currently tenanted under a commercial lease.
• You intend to enter into a contract of sale with a potential purchaser for the sale of the Property together with the tenancy agreement of the commercial lease intact.
• You intend to sell the Property only to a purchaser who is registered for the GST.
• You will, at the transfer of ownership, provide the purchaser the real property and all of the other tangible and intangible assets as may be required for the purchaser to carry on the leasing enterprise if the purchaser so wishes.
• You will transfer the property subject to all of the current leases to the purchaser at the transfer of the ownership.
• You and the potential purchaser will agree, under the terms of the contract of sale, that the supply of the leased commercial premises is the supply of a going concern.
• You will continue the enterprise of leasing in respect of the Property until the day of the supply.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
Reasons for decision
Summary
The sale of the commercial property is a GST-free supply of a going concern under section 38-325 of the GST Act if all the requirements are met.
Detailed reasoning
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 the supply will be made in the course or furtherance of the enterprise you are carrying on. The supply is connected with Australia as the property is in Australia and you are registered for GST. Therefore, paragraphs (a), (b), (c) and (d) of section 9-5 of the GST Act will be satisfied when the supply is made.
Further, the supply of the Property will not be an input taxed supply under any provision of the GST Act. We will now consider whether the supply of the Property will be 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 proposed contract of sale outlines that the sale of the property will be for consideration. You inform us that you will sell the property only to a purchaser who is registered for the GST. The draft contract of sale you have prepared states that the sale will be that of a going concern. Therefore, subsection 38-325(1) of the GST Act will be satisfied when the contract of sale, as spelt out in the facts you have given us, is executed.
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).
You state that you will carry on the leasing enterprise of the Property until the transfer of the ownership. If you do so, you will be satisfying 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.…
Under the draft contract of sale, it appears that you intend to supply the potential purchaser all of the things that are necessary for the continued operation of the leasing enterprise on the day of the settlement. These are, in the main, the Property and the assignment of the current lease.
Provided these are carried out at settlement, you will be satisfying 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 leases 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.
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