Edited version of your written advice

Authorisation Number: 1012804924705

Ruling

Subject: GST and the supply of a going concern

Question

Is the sale of Entity A (in liquidation) as trustee for Trust 1's 50% interest in the properties a supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

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.

Entity A (in liquidation) as trustee for Trust 1 (Entity A1) is the joint registered proprietor of a number of commercial properties.

The Properties are jointly owned by Entity A1 and Entity B as trustee for Trust 2 (Entity B2) as tenants in common in equal shares.

Entity A was placed in liquidation on xxyyyy. X and Y are the Liquidators of the company.

The Properties are all subject to ongoing commercial leases (Leases). Entity A1 and Entity B2 are joint landlords in respect of each of the Leases (which were entered into prior to the liquidation of Entity A.

Both Entity A1 and Entity B2 are registered for GST

Entity A1 and Entity B2 were in a tax law partnership which was registered for GST. As detailed in the further information request outlined below, the partnership was dissolved on xxyyyy.

GST is charged and collected on the rents received from the tenants of the Properties.

The total rental income from the properties is $ per annum plus GST.

It has been agreed that the Liquidator of Entity A will sell and transfer Entity A1's interests in the Properties for market value to Entity B as trustee for Superannuation Fund No 1, in accordance with a formal Contract of Sale of Real Estate (Contract).

Entity A1's interest in the Properties will be sold subject to the Leases which are ongoing at the time of the sale. A written agreement will be contained in the Contract of Sale stating that the sale of Entity A1's interest in the Properties is the supply of a going concern. You have advised that there is no management agreement in place or any other service agreements which are required to be supplied.

After the proposed transfer, the properties will be beneficially owned by Entity B as trustee for Superannuation Fund No.1 and Entity B as trustee for Trust 2, as tenants in common. You have advised however, that as the Titles office does not recognise Trusts, Entity B will be registered as the sole legal owner of the properties.

You have provided the following relevant documentation:

1. Title Search Statements (Certificates of Title) for the respective properties.

2. Summary of the Leases currently in place.

3. Draft Contract of Sale of Real Estate.

Draft Contract of Sale - Relevant paragraphs

Date of Contract

Vendor Entity A (in Liquidation)

Purchaser Entity B ATF Superannuation Fund No. 1

Land The interests of the Vendor in the Land described below:-

x.Leases

x.x THE Purchaser acknowledges and agrees that the Land is sold subject to the Leases referred to in the Particulars of Sale and the Leases Summary.

x.x THE Purchaser acknowledges and agrees that neither the Vendor nor the Liquidator warrant or represent that the Leases are enforceable or binding or that the provisions of the Leases have been complied with by the Vendor, the Liquidator or the tenants named therein.

x.x THE Purchaser hereby acknowledges and agrees that from the Settlement Date it shall take over the obligations of the Vendor and the Liquidator in respect of the Leases and must duly observe and perform all of the Landlord's obligations contained or implied in the Leases

x. GST

x.x The Purchaser and the Vendor agree that this Contract provides for the supply of a going concern and the Purchaser acknowledges and agrees that the Vendor supplies to the Purchaser all of the things that are necessary for the continued operation of an enterprise.

x.x The Purchaser warrants that it is registered or required to be registered and shall provide written proof to the Vendor's satisfaction no later than fourteen (14) days prior to the Settlement date. If the Purchaser fails to do so, the supply of the Land is to be a taxable supply and Special condition x.x shall not apply.

x.x Notwithstanding Special Condition x.x the Purchaser acknowledges and agrees that the Price is in any event expressed as a GST exclusive amount and to the extent that the Vendor makes a taxable supply in connection with this Contract, that the consideration payable by the Purchaser represents the value of the taxable supply for which payment is to be made.

xx. Private Tax Ruling

xx.x The Parties authorise the Vendor's solicitor to make a joint application to the Australian Taxation Office ("ATO") for a private tax ruling ("Private Ruling")…

Further information requests

In an e-mail dated xxyyy, your representative advised as follows:

1. The Private Ruling application submitted to the Australian Taxation Office (ATO) is a joint application on behalf of Entity B as trustee for Superannuation Fund No.1 and Entity A (in liquidation) as trustee for Trust 1.

2. Entity B as trustee for Trust 2 and Entity A as trustee for the Trust 1 were until xxyyyy the partners of the partnership known as Entity D.

3. The partnership was registered for GST until xxyyyy. Yearly tax returns were lodged by the partnership together with quarterly BAS statements. Further, a tax law partnership existed until the partnership's dissolution on xxyyyy.

4. Entity A as trustee for Trust 1 is registered for GST.

5. The partnership operated a single bank account and all rental income was paid into, and expenses were paid out of, this account.

6. The Accountant acting for the partnership considers that paragraphs 249-258 of GSTR 2004/6 appear to align with the partnership's position.

Further, in an e-mail dated xxyyyy, your representative advised as follows:

1. Entity B is (and has at all times material been) the trustee of Trust 2.

2. The partnership was cancelled at the end of yyyy by mutual agreement due to the liquidation of Entity A. It was then also agreed by the parties to cancel the partnership's ABN and GST registration at xxyyyy. Thereafter, each partner would account for their respective GST obligations separately.

3. All commercial leases are still operative and were so at the time that the Contract of Sale was entered into and will continue to be so at settlement and completion of the Contract.

4. The Accountant acting for the partnership has advised that paragraphs 249-258 of GST ruling 2004/6 apply on the following basis:

(a) Each co-owner carries on a leasing enterprise in relation to the subject land;

(b) Each co-owner is a Landlord named in the leases and receives a one half share of the rents and profits;

(c) Each of the co-owners carried on the leasing enterprise as at the day of sale and will continue to do so until the date of supply (being settlement of the Contract);

(d) Each co-owner has a 50% interest in the leased commercial properties;

(e) The registered owners were originally registered for GST in partnership and now have their own separate GST registration;

(f) There is an agreement between the supplier and the recipient in writing that the supply is of a going concern (Special Condition x of the Contract of Sale).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 58-10

A New Tax System (Goods and Services Tax) Act 1999 Section 38-325

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

In this reasoning,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Under section 58-10 a representative is liable to pay any GST that an 'incapacitated entity' would be liable to pay on a taxable supply.

Incapacitated entity (IE) is defined in section 195-1 and includes an entity which has a representative appointed over it.

The term 'representative' is defined in section 195-1 to include amongst other things, a liquidator.

On xxyyyy, you, X and Y, were appointed as liquidators over the assets of Entity A. Accordingly, as a liquidator you are a representative and Entity A is an incapacitated entity.

You will have exclusive responsibility for the GST consequences of the supplies and acquisitions of Entity A (in liquidation) as trustee for Trust 1 from xxyyyy.

Going Concern

Under section 58-10 a representative is liable to pay any GST that an incapacitated entity would be liable to pay on a taxable supply.

The term representative is defined in section 195-1 to include:

• A liquidator

• A receiver

• A controller(within the meaning of section 9 of the Corporations Act)

• An administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001

On xxyyyy, you were appointed as liquidators over the assets of Entity A. Accordingly, as a liquidator you are a representative.

An incapacitated entity (IE) is defined in section 195-1 as an entity which has a representative appointed over it. Therefore, Entity A is an incapacitated entity.

To the extent that you are exclusively responsible for the supplies made by Entity A, you will have exclusive responsibility for the GST consequences of the supplies and acquisitions from xxyyyy.

Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free.

A supply of a going concern is defined in subsection 38-325(2) to mean a supply made 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

• 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).

The supply of a going concern will be GST-free if:

• the supply is for consideration

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

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

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) provides guidance, amongst other things, on the requirements to be met for a supply to be a GST-free supply of a going concern.

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) provides guidance on the supply of an interest in income producing property in the context of the supply of a GST-free going concern.

Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships (GSTR 2003/13) explains how the GST Act applies to transactions involving general law partnerships.

Supplier

Entity A (In Liquidation) is named as the vendor under the Contract Of Sale. You have advised that Entity A acts as trustee for Trust 1.

Entity B as trustee for Trust 2 (Entity B2) and Entity A as trustee for Trust 1 (Entity A1), until xxyyyy, were the partners of the tax law partnership known as Entity D.

Entity A1 and Entity B2 are the joint registered proprietors of the commercial properties. The Properties are jointly owned by Entity A1 and Entity B2 as tenants in common in equal shares.

The partnership was cancelled at the end of yyyy by mutual agreement due to the liquidation of Entity A. It was then also agreed by the parties to cancel the tax law partnership's ABN and GST registration at xxyyyy.

You have advised that hereafter, each partner would account for their respective GST obligations separately and each co-owner would carry on a leasing enterprise in relation to the subject land.

We have accepted this statement as fact and have not sought to verify the validity thereof. As such, this ruling is based on your contention that the respective entities are acting as co-owners, conducting separate leasing enterprises from xxyyyy in respect of the subject property.

Consequently, Entity A1 will be the supplier of the 50% interest in the leased property for the purposes of section 38-325.

Identified enterprise

Subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the identified enterprise). Under paragraph 38-325(2)(a) the identified enterprise is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Under paragraph 38-325(2)(b) the supplier must also carry on the identified enterprise until the day of the supply, whether or not as part of a larger enterprise. (See paragraphs 29 and 30 of GSTR 2002/5.)

Paragraphs 249 and 250 of GSTR 2004/6 state:

As explained in paragraph 183 of this Ruling, the sale of a co-owner's interest in property may be a supply by that co-owner in carrying on a leasing enterprise in its own right. For the supply of an interest in leased property to be the supply of a going concern, an enterprise must be carried on in relation to that interest.

We consider that a leasing enterprise can be carried on in relation to a co-owner's interest in leased property

In this case, the identified enterprise carried on by Entity A1 is a commercial leasing enterprise.

Recipient

The Purchaser of the interest under the Contract of Sale is Entity B as trustee for Superannuation Fund No.1

All things necessary

GSTR 2004/6 discusses the supply of an interest in the income producing property.

Paragraph 187 of GSTR 2004/6 states:

We consider that the supply of an interest in leased property is the supply of all things necessary for the continued operation of an enterprise. This is because the purchaser acquires a reversionary interest, that is, the interest in the property subject to the rights and obligations pursuant to the existing lease. If the leased property is subject to a management agreement and the supply of rights under such an agreement is necessary for the continued operation of the enterprise, the partnership will have supplied all the things necessary for the continued operation of a leasing enterprise if there is a supply of that interest and the rights under the management agreement by assignment or novation.

Paragraph 251 of GSTR 2004/6 further states:

If a co-owner carries on a leasing enterprise in relation to their interest in leased property, the supply of part or all of that co-owner's interest in the property is the supply of all things necessary for the continued operation of the enterprise. The requirements of paragraph 38-325(2)(a0 are met because the purchaser of the interest acquires a reversionary interest in the interest in the property, that is, that interest subject to the rights and obligations pursuant to the existing lease.

We consider that Entity A1 will supply all of the things that are necessary for the continued operation of the identified enterprise.

Enterprise carried on until day of supply

Paragraph 38-325(2)(b) requires that the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier). We consider that if an interest in property is used in a leasing enterprise carried on by a co-owner, the co-owner, as the supplier of the interest, carries on an enterprise in relation to that interest until the day of the supply.

In your case therefore, we consider that the enterprise of commercial leasing of property is carried on until the day of the supply.

Consideration

There is consideration under the contract for the supply of the enterprise for the purposes of paragraph 38-325(1)(a).

Registration

You have advised that Entity B as trustee for Superfund No.1 is registered for GST.

Agreement in writing

Paragraph 38-325(1)(c) requires the supplier and recipient to agree in writing that the supply is of a going concern.

Paragraph xx of the Contract of Sale states:

The Purchaser and the Vendor agree that this Contract provides for the supply of a going concern and the Purchaser acknowledges and agrees that the Vendor supplies to the Purchaser all of the things that are necessary for the continued operation of an enterprise.

Consequently, the requirement under paragraph 38-325(1)(c) is met.

Conclusion

The supply of a 50% interest in the properties from Entity A as trustee for Trust 1 to Entity B as trustee for Superannuation Fund No. 1 will satisfy the requirements of section 38-325 and will be a GST-free supply of a going concern.

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