Edited version of your written advice

Authorisation Number: 1012771118315

Ruling

Subject: GST and GST-free supply of a going concern

Question

Is the sale of the Property a sale of a GST -free going concern?

Answer

Yes

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

• XXX as trustee for the YYY Trust (Purchaser) is registered for goods and services tax (GST).

• AAA as trustee for BBB Trust (Vendor) is registered for goods and services tax (GST).

• The Vendor has authorised the Purchaser to prepare and lodge a Private Binding Ruling application on the Vendor's behalf.

• The Vendor and Purchaser entered into a Sale Contract for the Property.

• Under clause xx of the Sale Contract, the Vendor agrees to sell to the Purchaser the Property, in consideration of the purchase price, on the day for settlement.

• Under clause yy of the sale contract the Vendor and Purchaser agree that subject to the receipt of a Favourable Private Binding Ruling from the ATO, the supply of the Property constitutes the supply of a going concern and to the understanding of the parties is accordingly GST free.

• For the purposes of the Sale Contract, the term "Property" is defined in the Sale Contract to include:

• the Land.

• the Building, being the building on the Land.

• There is only one real property title for the whole of the Land and the Building.

• The Building is comprised of office space, retail areas, car park, the tenancies and the plant and equipment.

• One retail shop is currently subject to a lease.

• The car park is currently subject to a lease.

• Other leases or licences are also in place.

• The whole of the office space was leased to Company C. Company C had occupied the building for a long period of time.

• The office space has been vacant since Company C departed.

Sale and leasing activities

In the year before the expiry of the Company C's lease, the board determined that it wished to either:

• re-lease the office space in the Property with minimal capital expenditure; or

• explore the market for selling the Property (either before or after the expiry of the lease).

• The board considered a number of options in order to maximise value for investors including the sale of the Property subject to lease and sale of the Property with vacant possession.

• In the lead up to the expiry of the lease, and continuing to date, AAA has taken the following steps in relation to the Property:

• Appointment of leasing agents

• Leasing enquiries

Current status

• There have been many leasing enquiries over the past 12-13 months, the only ongoing discussions are with the State Government and Company Q through Agents.

• During the period between exchange and settlement of the Sale Contract, the Vendor may lease vacant areas within in the Building, subject to first obtaining the Purchaser's consent.

• The Sale Contract does not provide for the Purchaser to acquire the Building with vacant possession.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-20

Section 38-325

Reasons for decision

Summary

The Vendor will make a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

Under section 9-5, an entity makes a taxable supply if:

• it makes a supply for consideration

• the supply is in the course or furtherance of an enterprise that it carries on

• the supply is connected with Australia, and

• the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

On the facts provided, the supply of the Property will be a taxable supply unless it is GST-free or input taxed. In the current circumstances, there is no provision under the GST Act in which the supply will be input taxed.

Section 38-325 of the GST Act deals with the supply of a going concern. Subsection 38-325(1) of the GST Act provides that the supply of a going concern is GST-free if:

• the supply is for consideration

• the recipient is registered or required to be registered for GST, and

• the supplier and the recipient have agreed in writing that the supply is of a going concern.

On the facts supplied, the supply will satisfy the requirements of subsection 38-325(1) of the GST Act. Therefore, where the supply meets the requirements of subsection 38-325(2) of the GST Act it will be a GST-free supply of a going concern.

Subsection 38-325(2) of the GST Act provides that a supply of a going concern is a supply under an arrangement under which:

• the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and

• the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of the larger enterprise carried on by the supplier).

Supply under an arrangement

Paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5; Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explain that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement.

The Property will be supplied pursuant to the Sales Contract. Therefore, the supply of the Property will be a supply under an arrangement.

Supplier supplies all things necessary for the continued operation of an enterprise

Subsection 38-325 (2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the identified enterprise). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

The term 'enterprise' is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.

Where an enterprise consists solely of the leasing of property, paragraph 96 of the GSTR 2002/5 states that the things that are necessary for the continued operation of the enterprise include the supply of the property and the covenants of the lease.

In this case, the identified enterprise carried on by the Vendor is the leasing of the Property. The enterprise carried on by the Vendor is continuous and uninterrupted. This is the identified enterprise and is capable of being treated as a going concern. The supply is a supply of a going concern when all of the things necessary to continue the operation of the leasing enterprise as an independent enterprise, are supplied (refer paragraph 31 of GSTR 2002/5)

Where the enterprise is identified, a supplier needs to supply all of the things that are necessary for the continued operation of that enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. (refer paragraph 30 of GSTR 2002/5)

In this case, the Property is comprised of office space, retail areas, car park, the tenancies and the plant and equipment. Whilst there is only one retail shop currently subject to a lease, the car park is subject to a lease and other leases or licences are in place with respect to storage area, mobile coffee cart and telecommunication equipment. The whole of the office space, which was previously the subject of a lease is currently vacant.

However the Vendor has confirmed that they have been actively marketing the vacant areas through the appointment of leasing agents and correspondence with various property agents and discussions with both State and Federal Government agencies and other business with respect to the leasing of the vacant space.

Paragraph 151 of public ruling GSTR 2002/5 provides that the activity of leasing a building which has previously been leased to a tenant remains an 'enterprise' of leasing for the purposes of section 9-20 of the GST Act during the period of temporary vacancy when a new tenant is being actively sought by the building owner.

Based on the facts provided, it is our view that all the things necessary for the continued operation of the leasing enterprise will be supplied under the arrangement.

Supplier carries on the enterprise until the day of the supply

Under paragraph 38-325(2)(b), a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be carried on, by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership (refer to paragraph 141 of GSTR 2002/5). The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier (refer to paragraph 161 of GSTR 2002/5).

The day of supply occurs when the Vendor has done everything to satisfy its obligations under the Contract and the Purchaser has assumed effective control and possession of the Property. Pursuant to clause zz of the Sale Contract, the Vendor warrants that it will continue to carry on the enterprises of leasing the Property until settlement.

It is our view that the Vendor will carry on these enterprises until the day of supply to the Purchaser. Therefore, the Vendor will satisfy the requirements of subsection 38-325(2).

Conclusion

As the Vendor will satisfy the requirements of subsections 38-325(1) and (2) of the GST Act, their supply of the Property will be a supply of a GST-free going concern for the purposes of section 38-325 of the GST Act.

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