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Edited version of your written advice
Authorisation Number: 1012731399269
Ruling
Subject: GST and the supply of a going concern
Issue 1
Question 1
Are you supplying a leasing enterprise being the enterprise of leasing out Area A?
Answer
Yes
Question 2
Are you supplying a leasing enterprise being the enterprise of leasing out Area B?
Answer
Yes
Issue 2
Question 1
Is the supply from you to purchaser C a GST-free supply of a going concern?
Answer
Yes
Question 2
Is the supply from you to purchaser D a GST-free supply of a going concern?
Answer
Yes
Relevant facts and circumstances
• You hold a ground lease
• The land is held on a single title
• You, purchaser C and purchaser D are registered for GST
• Purchaser C and purchaser D are beneficiaries of bare trusts
• The trustees of the bare trusts do not have any active duties to perform in their capacity as trustees aside from holding the legal title to the trust property as bare trustee for the beneficiaries of the respective trusts.
• The beneficiaries being purchaser C and purchaser D are providing the purchase cost of the land.
• The intention of the purchasers is to obtain interests in separate and mutually exclusive parts of the land. Specifically, the purchasers intend that:
a. Trust 1 obtains an interest in Area A
b. Trust 2 obtains an interest in Area B
• You entered into a contract for the transfer of your leasehold interest in the Land under the Ground Lease
• Relevantly, the contract provides:
• a clause agreeing the supplies are supplies of going concerns; and
• a clause that provides that the vendor will market vacant areas and assign the agreement with the real estate agent over to the purchaser at settlement: and
• existing leases are assigned to the purchasers
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.
Reasons for decision
Issue 1 Question 1
Summary
You are the supplier of the property and leasing operation on that property. The acquisition is being made by the beneficiary of the bare trust.
Detailed reasoning
In applying the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) it is relevant to identify the supplier and the recipient. In your case where the supply being made involves the supply of property and bare trusts the Commissioners view is outlined in Goods and Services Tax Ruling GSTR 2008/3 Goods and services tax: dealings in real property by bare trusts. As discussed in GSTR 2008/3 there is nothing in the GST Act requiring legal title to the assets of an enterprise to be held or dealt with by the entity carrying on the enterprise, in order for taxable supplies or creditable acquisitions of the assets to be made. A beneficiary of a bare trust may acquire and carry on an enterprise such as leasing of property even though title to the property is registered in the name of a bare trustee.
In your case you have entered a contact for sale to sell the property to the trustees for the bare trusts the beneficiaries for whom are purchaser C and purchaser D. Under the terms of the contract the two trustees are not purchasing the property under a partnership arrangement rather they are each purchasing interest in a defined portion of the total property. The contract allows that trust 1 obtains interest in Area A. As per the principles of GSTR 2008/3 purchaser C is making an acquisition in the course of their enterprise and the title in the relevant property is conveyed to the bare trustee.
Issue 1 Question 2
Summary
You are the supplier of the property and leasing operation on that property. The acquisition is being made by purchaser D.
Detailed reasoning
In applying the GST Act it is relevant to identify the supplier and the recipient. In your case where the supply being made involves the supply of property and bare trusts the Commissioners view is outlined in GSTR 2008/3. As discussed in GSTR 2008/3 there is nothing in the GST Act requiring legal title to the assets of an enterprise to be held or dealt with by the entity carrying on the enterprise, in order for taxable supplies or creditable acquisitions of the assets to be made. A beneficiary of a bare trust may acquire and carry on an enterprise such as leasing of property even though title to the property is registered in the name of a bare trustee.
In your case you have entered a contact for sale to sell the property to the trustees for the bare trusts the beneficiaries for whom are purchaser C and purchaser D. Under the terms of the contract the two trustees are not purchasing the property under a partnership arrangement rather they are each purchasing interest in a defined portion of the total property. The contract allows that trust 2 obtains interest in Area B. As per the principles of GSTR 2008/3 purchaser D is making an acquisition in the course of their enterprise and the title in the relevant property is conveyed to the bare trustee.
Issue 2 Question 1
Summary
All the conditions required for a sale to be made as a GST-free supply under the going concern provisions of the GST Act are met.
Detailed reasoning
Section 38-325 of the GST Act defines that a supply of a going concern is a supply:
(a) made under an arrangement whereby the supplier supplies all of the things necessary for the continued operation of an enterprise; and
(b) the supplier carries on, or will carry on, the enterprise until the day of supply.
In this case the enterprise is that of a leasing enterprise and you are supplying part of your larger enterprise of the leasing of commercial property. Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free discusses the fact that the definition of a supply of a going concern clearly recognises there may be more than one supply of a going concern when separately identifiable parts of a larger enterprise are supplied. You are providing the leasing enterprise utilising Area A which is a separately identifiable part of their larger enterprise of leasing commercial property.
As provided by GSTR 2002/5 the enterprise of a leasing commercial property would require the supplier to supply the premises and assign all the relevant lease agreements, in respect of the property, to the purchaser so that they can continue the leasing enterprise without any disruption.
The contract for sale provides purchaser C with interest in the ground lease Area A. The contract also provides that you will actively market any vacant area for lease and upon completion of the contract any agreement with the real estate agent will be assigned to the purchaser. In the course of conducting a leasing operation it is normal that some areas may become untenanted and be in the state of being actively marketed. As such it is clear that you are supplying all the things necessary for the continued operation of the enterprise. It is also clear that you will be carrying on the enterprise until the day of supply therefore the supply is that of a going concern.
Section 38-325 of the GST Act provides that a supply of a going concern is GST-free if:
(a) the supply is for consideration; and
(b) the recipient is registered for GST (or required to be registered for GST); and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
The contract for sale of land as provided shows that the sale is being made for consideration. As discussed in question one above the recipient for the purposes of GST is purchaser C who is registered for GST. GSTR 2008/3 paragraph 83 discusses supplies of going concerns when the sale involves property being conveyed by or to a bare trustee for the beneficiary. In these circumstances if the trustee agrees in writing that the supply is a supply of a going concern they do so on behalf of the beneficiary. The contract for sale between the vendor and the trustees contains a clause under which the vendor and trustees agree that the supplies of each leasing enterprise are going concerns for the purposes of the GST law. As this agreement is made on behalf of purchaser C all three conditions of a going concern have been met.
The supply is therefore a GST-free supply of a going concern.
Issue 2 Question 2
Summary
All the conditions required for a sale to be made as a GST-free supply under the going concern provisions of the GST Act are met.
Detailed reasoning
Section 38-325 of the GST Act defines that a supply of a going concern is a supply:
(a) made under an arrangement whereby the supplier supplies all of the things necessary for the continued operation of an enterprise; and
(b) the supplier carries on, or will carry on, the enterprise until the day of supply.
In this case the enterprise is that of a leasing enterprise and you are supplying part of your larger enterprise of the leasing of commercial property. GSTR 2002/5 discusses the fact that the definition of a supply of a going concern clearly recognises there may be more than one supply of a going concern when separately identifiable parts of a larger enterprise are supplied. You are providing the leasing enterprise utilising Area B which is a separately identifiable part of their larger enterprise of leasing commercial property.
As provided by GSTR 2002/5 the enterprise of a leasing commercial property would require the supplier to supply the premises and assign all the relevant lease agreements, in respect of the property, to the purchaser so that they can continue the leasing enterprise without any disruption.
The contract for sale provides purchaser D with interest in the ground lease Area B. Under the terms of the contract the relevant leases are assigned to purchaser D. Further to which the contract provides that you will actively market any vacant area for lease and upon completion of the contract any agreement with the real estate agent will be assigned to the purchaser. In the course of conducting a leasing operation it is normal that some areas may become untenanted and be in the state of being actively marketed. As such it is clear that you are supplying all the things necessary for the continued operation of the enterprise. It is also clear that you will be carrying on the enterprise until the day of supply therefore the supply is that of a going concern.
Section 38-325 of the GST Act provides that a supply of a going concern is GST-free if:
(a) the supply is for consideration; and
(b) the recipient is registered for GST (or required to be registered for GST); and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
The contract for sale of land as provided shows that the sale is being made for consideration. As discussed in question one above the recipient for the purposes of GST is purchaser D who is registered for GST. GSTR 2008/3 paragraph 83 discusses supplies of going concerns when the sale involves property being conveyed by or to a bare trustee for the beneficiary. In these circumstances if the trustee agrees in writing that the supply is a supply of a going concern they do so on behalf of the beneficiary. The contract for sale between the vendor and the trustees contains a clause under which the vendor and trustees agree that the supplies of each leasing enterprise are going concerns for the purposes of the GST law. As this agreement is made on behalf of purchaser D all three conditions of a going concern have been met.
The supply is therefore a GST-free supply of a going concern.
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