Edited version of your written advice

Authorisation Number: 1012743263987

Ruling

Subject: Supply of a going concern - land development enterprise

Question 1

Is the supply made by the Vendor to the Purchaser pursuant to a Contract for the Sale of Land dated late October 2014 (Contract) the supply of a going concern within the meaning of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply made by the Supplier to the Purchaser pursuant to the Contract is the supply of a going concern within the meaning of section 38-325 of the GST Act

Relevant facts and circumstances

Contract:

In late October 2014 the Purchaser entered into the Contract with the Vendor for the purchase of the Property.

The Contract is for the sale of the Property with vacant possession for $XX million. The Completion Date is late November 2014. The Tax Information on the front page of the Contract, i.e.

Tax information (the parties promise this is correct as far as each party is aware)

states that land tax is adjustable and, in relation to GST, that the margin scheme will not be used in making the taxable supply but does not state whether or not there is a taxable supply or whether the sale is not a taxable supply because the supply is either not made in the course of an enterprise carried on by the Vendor, the Vendor is not registered for GST, the sale is a supply of a going concern, the sale is a supply of sub-divided farm land, or the sale is input taxed. However, the words 'SEE SPECIAL CONDITION' are added to the Tax information.

A Special Condition to the Contract states:

On page 1, under the heading (tax information (the parties promise this is correct as far as each party is aware) delete everything relating to goods and services tax (that is from 'GST' to '195-1') inclusive.

Another Special Condition replaces the conditions to the Contract which deal with GST with provisions which include:

The vendor must not apply the margin scheme in working out the amount of GST on any supply.

A further Special Condition states that the Vendor discloses that it was a condition of the approval by the Foreign Investment Review Board (FIRB) of the acquisition of the Property by the Vendor that the Vendor not sell the Property before completing certain stages of the development of the Property (FIRB Condition) and that the Vendor has sought the FIRB's consent to either the sale of the Property notwithstanding that the FIRB Condition is not satisfied or waiver of the FIRB Condition.

Another Special Condition states that the Purchaser warrants that the Purchaser satisfied itself about the Concept Plan Approval and Project Approval and all other matters concerning the present and future development of the Property and does not rely on any representation made by the Vendor.

Another Special Condition also deals with GST. It states that each party warrants that it is registered or required to be registered under the GST Act, and:

The parties believe that no GST is payable under or in connection with this Contract as each supply under this Contract by the Vendor to the Purchaser is made in connection with the supply of the Development Enterprise as a supply of a going concern for GST purposes.

We could not find a definition of Development Enterprise in the Contract.

That Special Condition also states that the Purchaser must apply for a private ruling that the supply under the Contract is the supply of a going concern and that if the Purchaser does not obtain by Completion Date a private ruling confirming that the supply under the Contract is the supply of a going concern or if for any reason any supply made under the Contract is a taxable supply, the consideration that the recipient of that taxable supply must pay or provide for that taxable supply is increased by the amount of GST payable in respect of that taxable supply.

Another Special Condition deals with Assignment of Approvals as follows:

(a) The parties agree that the sale of the Property includes any development application, approvals, reports, and plans relating to the proposed development of the Property and the Vendor's intellectual property in those materials (if any).

(b) On the Completion Date the Vendor will:

Assign to the Purchaser the benefit of all applications, consents and approvals lodged obtained or granted in respect of any approval or application in relation to the Land;

Deliver to the Purchaser the originals or, if such originals are no longer in the possession or power of the Vendor, true copies of;

Applications;

Consents;

Approvals; and

Plans, drawings, reports, and surveys (including digital versions if they exist)

in the Vendor's possession or control in relation to any approval or application in relation to the Land;

Licence the Purchaser to use those materials to the same extent as the Vendor was able to use those materials;

(c) Authorise any government department, local authority or consultant to furnish to the Purchaser information and documentation in relation to any approval or application in relation to the Land as the Vendor would be entitled to seek and to then continue to deal with and accept instructions or directions from the Purchaser.

(d) Sign a deed in a form reasonably required by the Purchaser and agreed with the Vendor to give effect to the matters in this clause.

Appendices to the ruling request:

The Contract is attached to the ruling request as Appendix 1.

Appendix 2 to the ruling request is a copy of an extract from a Council meeting paper dated September 2014 which is stated to inform Council about the progress of the development of the Property and states, in part:

The [Vendor] is presently the owner of the [Property]. [The Vendor] has been working in partnership with B to undertake the development of the land based on an approved concept plan under Concept Approval YYY issued in March 2013.

…

In summary, the...development as currently approved involves a residential subdivision providing for approximately XXX lots as well as a neighbourhood commercial precinct, a community hall, seniors' housing, playing fields and associated infrastructure including internal roads…

…

Importantly, much of the infrastructure, including the playing fields, is to be delivered up front by the developer of the site prior to the release of residential land in the first stage of the development.

Council issued a Construction Certificate for Stage 1A of the development [in] August 2014. Stage 1A involves the creation of XX residential lots and provision of associated servicing infrastructure….Significantly, the lots in Stage 1A cannot be released for housing construction until the majority of the playing fields infrastructure has been completed.

Council has also issued a Construction Certificate for earthworks associated with Stage 1B [in] August 2014. This enables preloading and preparatory civil works to be undertaken in support of the broader Stage 1B development which includes road construction and the playing fields.

Recently, Council was notified by [the Vendor] that it is considering sale of the site. Council has also been advised that [the Vendor] currently has an expression of interest process underway… In the meantime [the Vendor] and [B] are continuing to seek construction approvals for the development, with Council currently processing Construction Certificate documentation for the remainder of Stage 1B, including the playing fields infrastructure.

Appendix 3 is a Concept Plan Approval dated November 2008 granted in respect of a Concept Plan Application lodged by P Ltd in respect of the Property for the carrying out of:

A residential subdivision comprising subdivision for single dwellings, duplexes, and medium density, a neighbourhood centre comprising commercial and retail space, a community centre, tavern and retirement village.

Schedule 1 to the Concept Plan Approval states that the Concept Plan Approval is to lapse five years from the date of determination unless works subsequent to Stage 1 works have physically commenced. Schedule 2 to the Concept Plan Approval refers to the project being undertaken in XX stages, Stages 1A, 1B and 1C comprising subdivision of XX residential lots plus X super lots and associated roads and landscaping; subdivision of X super lots and construction of roads; and construction of roads and a link for playing fields respectively. Stage 2 comprises residential subdivision and provision of open space to the north of the site.

Appendix 4 is a Project Approval dated November 2008 granted in respect of Project Application lodged by P Ltd for the carrying out of:

A XX lot subdivision comprising XX residential lots, X super lots for future development, X open space lots and a residual lot.

Schedule 1 to the Project Approval states that it is liable to lapse five years from the date of determination unless works have physically commenced. Schedule 2 to the Project Approval refers to the project being undertaken in three stages.

Appendix 5 is a Modification of the Project Approval dated December 2008 issued to P Ltd.

Appendix 6 is a Modification of the Concept Plan Approval dated August 2011 which consolidates the stages from XX to X and adds X super lots to Stage 1.

Appendix 7 is a Modification of the Concept Plan Approval dated September 2011 which modified the Concept Plan Approval by amending references to two drawings.

Appendix 8 is a Modification of the Concept Plan Approval dated March 2013 which modified the Concept Plan Approval by increasing the area of the conservation zone, removing some super lots, and providing that the Concept Plan Approval shall lapse in November 2016 unless works the subject of any related application are physically commenced on or before that lapse date.

Appendix 9 is a Construction Certificate dated August 2014 issued by Council in respect of Stage 1A.

Appendix 10 is a Construction Certificate dated August 2014 issued by Council in respect of earthworks pre-loading in respect of Stage 1B.

The covering letters issued by Council in respect of both Construction Certificates state:

Prior to any works commencing on the site a copy of the enclosed 'Notice of Commencement of Works' form must be completed and submitted to Council.

Appendix 11 is minutes of a meeting held in November 2014 by a Project Group (PG) comprising a representative of the Vendor, X representatives of the Purchaser and Y representatives from a firm of surveyors, planners and engineers. The minutes deal with matters such as ecology, stormwater management, roads, construction of a community hall, administration, and the documents which are to be provided for the ongoing works in relation to the Property.

Appendix 12 is a five page Schedule of Estimated Quantities in respect of Stage 1A dated September 2013.

Appendix 13 is a five page Civil Schedule for Stage 1B dated May 2014.

Appendix 14 is a three page construction estimate for the playing fields.

It was stated in the ruling request that an application for a Construction Certificate for the civil works for Stage 1B is currently before Council.

Submissions in the ruling request:

The ruling request stated that the history of the land development business carried on at the Property is demonstrated by Appendices 3 to 10 described above.

The ruling request referred to paragraph 27 of Goods and Services Tax Ruling GSTR 2005/5/ which states that the character, activities and extent of a property development or construction enterprise may vary widely depending on the composition of that enterprise.

It was submitted that development activities had been carried out by the Vendor in a systematic, organised and business-like manner as demonstrated by the Concept Plan Approval and Project Approval obtained (including the Modifications) and the engagement of consultants by the Vendor.

It was submitted that all of the requirements of subsection 38-325(1) of the GST Act are satisfied, i.e. the supply is for consideration, the recipient is registered for GST or is required to be so registered, and the supplier and recipient have agreed in writing that the supply is of a going concern.

In relation to paragraph 38-325(2)(a) of the GST Act (i.e. the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise), reference was made to paragraph 30 of GSTR 2005/5:

For the supply of lots or development land, necessary things may include:

rezoning applications, approvals or deeds;

intellectual property such as engineering plans for head works construction and utilities infrastructure, and environmental impact studies; and

rights of access.

It was submitted that, in addition to the Property, a Special Condition in the Contract requires the Vendor to supply to the Purchaser items that are integral to the continued operation of the enterprise (i.e. applications, consents, approvals, plans, drawings, reports and surveys plus a licence for the Purchaser to use those items) and that many of those items (i.e. Appendices 3 to 10) had already been provided to the Purchaser by the Vendor.

In relation to paragraph 38-325(2)(b) of the GST Act (i.e. the supplier carries on, or will carry on, the enterprise until the day of supply), it was submitted that the Vendor operated the land development enterprise until Completion date (late November 2014), as evidenced by various activities undertaken by the Vendor which were monitored by the Purchaser and the PG which held its last meeting in November 2014. It was submitted that the following activities were undertaken by the Vendor in the period up to Completion:

Assessment of the status of the Concept Plan Approval and Project Approval;

Cost estimates (Appendices 12-14);

Meetings with potential tenants;

Continuing the process for construction approvals (Appendix 2); and

Ensuring that Stage 1B Construction Certificate requisitions are being attended to.

Further information provided:

The Purchaser's adviser confirmed that Completion took place on late November 2014 and that the Vendor had asked the Purchaser to pay an amount equal to 10% of the sale price into a trust account pending the issue of this GST private ruling.

In subsequent e-mails the Purchaser's adviser responded to questions from the ATO as follows:

The Purchaser's adviser confirmed that Stage 1A involves the creation of XX residential lots and X open space lots, that a Construction Certificate for Stage 1A was issued in August 2014, and that a Notice of Commencement of Works in respect of Stage 1A is expected to be lodged in March or April 2015. The Purchaser's adviser stated that Stage 1B involves two 'sub-stages':

Pre-loading and preparatory earthworks - a Construction Certificate was issued in August 2014 and Notice of Commencement of Works is expected to be submitted in January 2105; and

Road construction and playing fields - a Construction Certificate is in the approval process and Council has issued requisitions.

The Purchaser's adviser confirmed that works on Stage 1A and Stage 1B cannot commence until Stage 1B pre-loading and preparatory earthworks have been completed.

The ATO noted that the Concept Plan Approval (Appendix 3) and Project Approval (Appendix 4) identify P Ltd as the applicant and that the Transfer of the Property to the Vendor in 2012 identifies P (Receivers and Managers Appointed) as the vendor. The Purchaser's advisor did not hold any information about the transfer of the Property from P Ltd to P but did confirm that the Vendor assumed possession of the Property as mortgagee. The Purchaser's advisor was not able to confirm whether the Concept Plan Approval and Project Approval were assigned to the Vendor.

The Purchaser's adviser confirmed that the Purchaser understands that the Vendor applied for the Modification of Concept Plan Approval (Appendix 8) and a Modification of Project Approval issued on 13 March 2013.

The Purchaser's adviser stated that, between acquiring the Property in February 2012 and the issue of the Construction Certificates for Stage 1A and for the pre-loading and earthworks for Stage 1B in August 2014 the Vendor undertook the following activities in carrying on the land development enterprise:

The Vendor's only activities were associated with the application for Construction Certificates however this is the normal course of activity for a property developer at the early stages of the development and these applications involved substantial activity. The application for the Construction Certificates involved 2-3 years of extensive work including:

Engagement of consultants and performance of services by the consultants including town planners, designers, engineers (including environmental engineers), surveyors and consultants;

A number of reports were commissioned including consultants' reports on soil conditions for pre-loading requirements, a conservation zone management plan approved by Commonwealth Government, and Ecological approval by State Government; and

Undertaking negotiations with Council.

We also note that the Vendor (and the Purchaser post-settlement) has performed work in the process of obtaining an Instrument (Ruling from State Government) for the lots (allowing a positive covenant to be recorded on title).

The Purchaser's adviser stated that the Vendor had not attempted to sell the Property prior to undertaking the Expression of Interest (EOI) process referred to in Council meeting notes dated September 2014 and that the Purchaser's adviser understood that the Vendor intended to develop the Property as evidenced by the lengthy and costly process involved in applying for the Construction Certificates. The Purchaser's adviser provided a copy of the Information Memorandum for the EOI process which offered the Property to the open market and closed in September 2014. The Purchaser's adviser confirmed that the Vendor and Purchaser entered into the Contract as a result of that EOI process.

We asked the Purchaser's adviser what activities were undertaken by the Vendor between the issue of the two Construction Certificates in August 2014 and execution of the Contract in October 2014. The Purchaser's adviser responded:

The Vendor continued the Construction Certificate process. A Construction Certificate for broader Stage 1B development including road construction and playing fields is still being processed by Council. Between exchange and settlement the Vendor continued to respond to requisitions (questions and information requests) from Council. The Vendor also continued obtaining State government approval for the positive covenant.

The Purchaser's adviser confirmed that the both the Concept Plan Approval and Project Approval obtained in November 2008, which were both stated to lapse within 5 years of determination unless certain works physically commenced, have been extended so that they now lapse in November 2016 unless the approved works have physically commenced on or before that lapse date. The Modification dated 13 March 2013 (Appendix 8) extends the Concept Plan Approval and the Purchaser's adviser supplied a copy of a Modification to the Project Approval also dated 13 March 2013 which extends the lapse date to November 2016.

We asked a number of questions about the activities relied on in the ruling request as evidence that the Vendor's land development enterprise was operating during the period between exchange of the Contract and Completion, i.e.

Assessment of the status of approvals;

Cost estimates;

Meetings with potential tenants

Continuing the process for construction approvals;

Ensure that the Stage 1B Construction Certificate application requisitions are being attended to

The Purchaser's adviser acknowledged that a Special Condition in the Contract states that the Purchaser satisfied itself in relation to the subject matter of the Contract (which included an assignment of the Approvals), but stated that it was nevertheless prudent for the Vendor to assess the Approvals and that the Vendor had done so. The Purchaser's adviser acknowledged that the cost estimates pre-dated the Contract but submitted that they nevertheless demonstrated that the Vendor was carrying on a land development enterprise. The Purchaser's adviser provided a copy of a letter dated September 2014 which refers to discussions between the Vendor and a potential commercial tenant.

In relation to 'continuing the process for construction approvals' we asked whether, following the issue of the Construction Certificate for Stage 1A in August 2014, the Vendor had submitted the Notice of Commencement of Works (which is required before works can commence). The Purchaser's adviser responded:

Neither the Vendor nor the Purchaser have completed and submitted a Notice of Commencement of Works for Stage 1A to date. The reason for this is because Stage 1B pre-loading (i.e. filling in swamp land) must occur before work commences on Stage 1A. It is expected that a Notice of Commencement of Works for Stage 1B pre-loading will be submitted in January 2015 and a Notice of Commencement of Works for Stage 1B will be submitted in March/April 2015. Fees for the Notice of Commencement of Works for Stage 1B have not been paid to date. The Purchaser has assumed this liability.

In relation to 'ensuring that Stage 1B Construction Certificate application requisitions are being attended to' the Purchaser's adviser explained that this required the Vendor to respond to questions and information requests from Council between exchange of the Contract and Completion, that it involved design changes and re-drafting of plans, and that the Purchaser has engaged the town planner and engineer used by the Vendor in this process.

The Purchaser's adviser confirmed that the Construction Certificate dated August 2014 is only in respect of Stage 1B pre-loading preparatory earth works, that an application of a Construction Certificate for Stage 1B road construction and playing fields has been submitted, and that the Vendor is responding to Council requisitions. The Purchaser's adviser confirmed that even of the works for Stage 1A are completed the residential lots in Stage 1A cannot be released for sale until most of the works for Stage 1B have been completed.

Relevant legislative provisions

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

Reasons for decision

Summary

For the purposes of subsection 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) we consider that the identified enterprise in relation to the Vendor is land development. We consider that the requirements of paragraph 38-325(2)(a) and (b) are satisfied in relation to that identified enterprise.

We also consider that the requirements of subsection 38-325(1) of the GST Act are satisfied.

Detailed reasoning

Paragraph 9-30(1)(a) of the GST Act states that a supply is GST-free if it is GST-free under Division 38 of the GST Act. Division 38 of the GST Act includes section 38-325 which states:

(1) 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.

(2) 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).

(* denotes a term defined in section 195-1 of the GST Act)

Goods and Services Tax Ruling GSTR 2002/5 discusses a supply of a going concern for the purposes of section 38-325 of the GST Act and when the supply of a going concern is GST-free.

Goods and Services Tax Ruling GSTR 2005/5 discusses whether the supply of substantially or partly completed lots or land held for development satisfies paragraph 38-325(2)(a) of the GST Act.

Below we first consider whether the requirements in subsection 38-325(2) of the GST Act are met and then address the requirements in subsection 38-325(1) of the GST Act.

Requirements in subsection 38-325(2)

Paragraph 29 of Goods and Services Tax Ruling GSTR 2002/5 states that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier and that the supplier must supply of all the things that are necessary for the continued operation of the identified enterprise. In addition the supplier must carry on the identified enterprise until the day of the supply, whether or not as part of a larger enterprise.

Identified enterprise

In a discussion of the 'identified enterprise' for the purposes of subsection 38-325(2) of the GST Act paragraph 22 of GSTR 2002/5 refers to the definition of 'enterprise' in section 9-20 of the GST Act which states that that an enterprise includes, among other things, an activity or series of activities done in the form of a business (paragraph 9-20(1)(a)).

It was submitted in the ruling request that the identified enterprise in the present case is land development, as demonstrated by the development approvals submitted, obtained and modified by the Vendor.

Paragraph 27 of GSTR 2005/5 states that an enterprise of property development or construction may involve one or more of the following activities:

land subdivision of small or large holdings;

subdivision and construction of premises in project stages;

subdivision, construction and marketing within the industry or direct to the public;

purchase and resale of land with development approvals;

the construction of houses only, the development of land or both; or

part of a larger enterprise.

The Concept Plan Approval (Appendix 3) refers to the carrying out of:

A residential subdivision comprising subdivision for single dwellings, duplexes, and medium density, a neighbourhood centre comprising commercial and retail space, a community centre, tavern and retirement village.

The Information Memorandum for the EOI process refers to a significant land subdivision comprising both residential and commercial components, a site area exceeding XX hectares, a master plan proposed for the entire site comprising homes, retirement village dwellings, a shopping centre and commercial area and sporting fields, with Project Approval for XX residential lots plus XX super lots for future development, XX open space lots, earthworks, associated roads and civil works and landscaping.

Based on that information we consider that the Vendor was carrying on the activity of 'land subdivision of small or large holdings' and that the identified enterprise is 'property development' as referred to in paragraph 27 of GSTR 2005/5.

All of the things that are necessary for the continued operation of an enterprise:

In relation to the requirement in paragraph 38-325(2)(a) of the GST Act that the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, the ruling request referred to a Special Condition in the Contract (which obliges the Vendor to assign to the Purchaser the benefit of all applications, consents, and approvals, deliver true copies of all applications, consents, approvals, plans and drawings and to licence the Purchaser to use those materials) and stated that the Vendor has provided Appendices 3 to 10 to the Purchaser.

Nevertheless we had some concerns as to whether the Vendor could satisfy paragraph 38-325(2)(a). One reason for this is that a Special Condition to the Contract indicates that the Vendor sold the Property without completing all the stages of development which were a condition of the Foreign Investment Review Board approving the purchase of the Property by the Vendor. A second reason is that some of the documents relied on in the ruling request as evidence that the Vendor carried on the enterprise until the day of supply did not appear to support that proposition (see below). A third reason is that the Contract does not contain a Special Condition obliging the Vendor to carry on the enterprise until the day of supply (per the ATO's Sale of a Business as a Going Concern Checklist).

Consequently we considered that there was an issue as to whether the identified enterprise was operating, as described in paragraph 150 of GSTR 2002/5:

A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating.

Paragraphs 31 to 35 of GSTR 2005/5 address the issue of whether a vendor continues the operation of a property development enterprise:

31. The term 'operation of an enterprise' is different to that of 'carrying on an enterprise'. As defined in section 195-1, 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of an enterprise while operation of an enterprise requires something more than this. The activity must be one which can properly be described as a business or undertaking capable of being handed over to the transferee in such a state that it may be carried on by the transferee if it so wishes. The particular business or undertaking must remain active and operating at the time of supply.

32. The Commissioner considers that for GST purposes whether the supplier continues to operate the enterprise is determined having regard to the substance of the matter rather than its form. Hence, a provision in the sale agreement to that effect is not conclusive.

33. In the context of property development, the requirement for the continued operation of the enterprise may not be satisfied if the only activities continued by the supplier after entering into the contract of sale are those required to satisfy the terms of the contract. For example, the supplier may carry out some works on the land as promised in the contract. However, the requirement for continued operation may not be satisfied if the supplier has ceased to carry out those activities, such as construction and marketing, which would be expected to be carried out during the relevant period if the operation of the development enterprise were continuing.

34. In determining whether the supplier continues the operation of the enterprise, the point to which the development has advanced when the contract is entered into, the period of time between contract and completion and the activities carried out in that time, and all other relevant circumstances, need to be considered. It is important to weigh up all the relevant facts and circumstances; no single factor may be determinative.

35. Property development and construction projects typically involve a series of activities that need to be performed before the actual operations of the enterprise can commence. Activities may also be performed after the operations of an enterprise have ceased. These activities do not relate to operating the enterprise.

Paragraph 34 of GSTR 2005/5 requires consideration of the point to which the development has advanced when the contract is entered into. The Contract was entered into on 21 October 2014. As at October 2014 the Vendor had owned the Property for 33 months, having acquired the Property in February 2012 subject to a FIRB consent that prohibited the Vendor from selling the Property before completing certain stages of development. When the Vendor acquired the Property in February 2012 the Concept Plan Approval (Appendix 3) and Project Approval (Appendix 4) issued in November 2008 were due to lapse in November 2013 but the Modification to Project Approval issued in March 2013 (Appendix 8) extended the lapse date of the Project Approval until November 2016. The Purchaser's adviser stated that the Purchaser understood that the Vendor applied for the Modification to Project Approval issued in March 2013. The lapse date of the Concept Plan Approval was similarly extended.

The next event is the issue of the Construction Certificates for Stage 1A (Appendix 9) and the pre-loading and earthworks for Stage 1B (Appendix 10) in August 2014, seventeen months after the Modification of Project Approval (Appendix 8) and two months before the Vendor and Purchaser signed the Contract. The Purchaser's adviser stated that the Vendor's activities during this period were limited to applying for the Construction Certificates, which was normal at the early stages of a development, but involved substantial activity and extensive work including work undertaken by consultants engaged by the Vendor (town planners, designers, engineers, environmental engineers and surveyors), the commissioning of reports (geotechnical reports, conservation zone management plan, ecological reports) and negotiations with Council.

The Council meeting paper dated September 2014 (Appendix 2) refers to the Vendor conducting an expression of interest process for sale of the Property and then states:

In the meantime [the Vendor]…and project consultants…are continuing to seek construction approvals for the Development, with Council currently processing construction certificate documentation for the remainder of Stage 1B, including the playing fields infrastructure.

Based on the material referred to above, we consider that the development enterprise was operating when the Contract was entered into in October 2014.

Paragraph 34 of GSTR 2005/5 also requires consideration of the period of time between contract and completion and the activities carried out in that time. The Contract was signed on 21 October 2014 and Completion occurred on 19 November 2014. It was submitted in the ruling request that the development enterprise was operating and the Vendor continued to operate that enterprise up to Completion, as evidenced by the monitoring of the Vendor's activities by the Project Group (PG) which held its last meeting in November 2014 and five development activities undertaken by the Vendor between exchange and settlement:

Assessment of the status of the Approvals;

Costs estimates (Appendices 12 to 14);

Meetings with potential tenants;

Continuing the process for construction approvals (Appendix 2); and

Ensuring that Stage 1B Construction Certificate application requisitions are being attended to.

The documents provided in relation to two of those development activities, i.e. 'cost estimates' (Appendices 12 to14 dated September 2013, May 2014 and August 2014 respectively) and 'meetings with potential tenants' (a copy of a letter dated September 2014 from a potential commercial tenant to the Vendor) indicate that those development activities occurred prior to the date the Contract was entered into.

Nor do we give much weight to a third development activity relied on in the ruling request (assessment of the status of the Concept Approval and Project Approval) because a Special Condition in the Contract states that the Purchaser has satisfied itself in relation to the subject matter of the Contract (which includes an assignment of the Approvals). The Purchaser's adviser stated that the PG assessed the Approvals. Based on the minutes of the PG's meeting in November 2014 (Appendix 11) the Vendor has one representative on the PG, although other PG members are surveyors, planners or engineers who may be engaged by the Vendor.

The fourth development activity referred to in the ruling request is 'continuing the process for construction approvals' and referred to Council's meeting notes dated September 2014 (Appendix 2) which refer to the Vendor 'continuing to seek construction approvals' and Council 'currently processing Construction Certificate documentation for the remainder of Stage 1B'. The Purchaser's adviser confirmed that Stage 1B comprised two 'sub-stages', that the Construction Certificate for the first sub-stage was issued in August 2014 (i.e. prior to 21 October 2014 when the Contract was entered into) and that only the application for the Construction Certificate for the second sub-stage was before Council (refer the discussion in the next paragraph).

In relation to the fifth development activity referred to in the ruling request ('ensure that Stage 1B Construction Certificate application requisitions are being attended to') the Purchaser's adviser confirmed that Stage 1B involved two 'sub-stages', i.e.

pre-loading and preparatory earthworks for which a Construction Certificate was issued in August 2014; and

road construction plus playing fields in respect of which the Construction Certificate is still in the approval process, Council has issued requisitions involving design changes and re-drafting of plans (referred to in the PG's minutes dated November 2014 (Appendix 11) to which the Vendor is responding)

Item I in the PG minutes (Appendix 11) is entitled 'Stage 1B CC Issues - BSC' and lists five 'issues raised by Council'.

We therefore accept that the fourth and fifth development activities relied on in the ruling request (which are essentially a single development activity) were carried on between 21 October and 19 November 2014 by the Vendor either directly or via the PG.

In the present case Council's meeting notes (Appendix 2) confirm that the works for Stage 1A and the second sub-stage of Stage 1B (road construction and playing fields) cannot commence until the first sub-stage of Stage 1B (pre-loading and preparatory earthworks) is completed and the Construction Certificate for the first sub-stage of Stage 1B was not issued until August 2014. Consequently we accept that the activities which the Vendor could carry on up to 19 November 2014 were necessarily limited.

For the reasons set out above we consider that paragraph 38-325(2)(b) of the GST Act is satisfied.

Requirements in subsection 38-325(1)

Paragraph 38-325(1)(a) requires that the supply of a going concern is for consideration. This requirement is satisfied as the front page of the Contract states that the price is $XX million and the conditions oblige the Purchaser to pay the Vendor the price on Completion.

Paragraph 38-325(1)(b) of the GST Act requires that the recipient is registered for GST or required to be so registered. GSTR 2002/5 states that the effective date of registration of the recipient must be on or before the day of the supply. It was stated in the ruling request that the Purchaser is registered for GST and the Special Conditions in the Contract state that each party warrants that it is registered or required to be registered. On that basis we consider that paragraph 38-325(1)(b) is satisfied.

Paragraph 38-325(1)(c) requires that the supplier and recipient have agreed in writing that the supply is of a going concern. Paragraphs 181 and 182 of GSTR 2002/5 state:

The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a 'supply of a going concern'.

The supplier and the recipient must agree that the supply is a 'supply of a going concern' on or before the day of the supply.

A Special Condition in the Contract deletes all of the 'Tax Information' on the front page of the Contract which relates to GST (and, in any event, the parties did not check the boxes included in that 'Tax Information' which indicate whether the sale of the Property is a taxable supply or is not a taxable supply because the sale is the supply of a going concern). Another Special Condition states:

The parties believe that no GST is payable under or in connection with this Contract as each supply under this Contract by the Vendor to the Purchaser is made in connection with the supply of the Development Enterprise as a supply of a going concern for GST purposes.

That Special Condition appears to be a statement of belief by the parties rather than the form of mutual declaration required by paragraph 181 of GSTR 2002/5. However, we consider that the words 'as each supply under this Contract by the Vendor to the Purchaser is made in connection with the supply of the Development Enterprise as a supply of a going concern for GST purposes' are sufficient to satisfy the requirement in paragraph 38-325(1)(c) of the GST Act.

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