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Edited version of your written advice
Authorisation Number: 1012870741910
Date of advice: 1 September 2015
Ruling
Subject: GST and supply of a going concern
Question
Is the sale of the Property by the Vendor pursuant to the Contract, a GST-free supply of a going concern for the purpose of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?
Answer
Yes.
Section 38-325 of the GST Act provides that a supply of a going concern is GST-free if it 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'. The term 'supply of a going concern' is defined as 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 a larger enterprise carried on by the supplier).
The supply of the Property will be a GST-free supply of a going concern for the purposes of section 38-325 of the GST Act because:
• the Vendor will supply the development and leasing enterprise for consideration;
• the recipient will be registered for GST;
• the Vendor and the recipient will have agreed in writing that the supply is of a going concern (pursuant the Contract);
• under the arrangement the Vendor will supply to the recipient all of the things that are necessary for the continued operation of the development and leasing enterprise such as, all government authorities, permits, applications and approvals relating to the enterprise, assignment and/or transfer of all contracts relating to the enterprise, and all books, reports, plans, drawings and other documents that relate to the operation of the enterprise; and
• the Vendor will carry on the development and leasing enterprise until the day of the supply (being the settlement date under the Contract).
Accordingly, provided the material facts remain unchanged, the Vendor's supply of the Property will be GST-free.
Relevant facts and circumstances
The Vendor acquired the Property for the purposes of development, leasing and sale to third parties. At all relevant times the Vendor conducted an enterprise of property development which involved, among other things, the attainment of development approvals and entry into lease agreements in respect of the Property to future sale.
After the Property was acquired, the Vendor has undertaken various development activities and obtained Council approvals in the course of the enterprise.
The current progress of site and construction works can be summarised as follows:
• Demolition -% complete
• Bulk earthworks -% complete
• Overall construction works -% complete.
• Other works - X completed.
The Vendor proposes to enter into the Contract to sell the Property to a single unrelated purchaser for a certain purchase price.
The Vendor has entered into Agreements for Lease with a number of entities.
The Property will be sold by the Vendor together with an assignment of all 'Agreement to Lease'.
The sale of the Property will include all of the things necessary for the continued operation of the enterprise in respect of the Property including:
1. All government authorities, permits, applications and approvals relating to the enterprise,
2. The assignment and/or transfer of all contracts relating to the enterprise, including all agreements for lease and licence agreement in respect of the Property, and
3. All books, reports, plans, drawings and other documents that relate to the operation of the enterprise.
Completion of the Contract is expected to occur 14 days after all conditions precedent have been satisfied in the Contract.
The Vendor will continue carry out development works on the Property until the day of settlement of the Contract.
Special Condition X of the Contract - 'Supply of Going Concern' contains the following provision:
(1) The parties agree that the supply of the property under this contract is the supply of a going concern for the purposes of Subdivision 38-J of the GST Act and that the supply is 'GST-free' for the purposes of the GST Act.
(2) The parties warrant that they are registered or required to be registered under Part 2-5 of the GST Act and will continue to be so at all relevant times up to completion of this contract.
(3) The Vendor warrants that it will carry on the enterprise until the day of supply of the property to the purchaser (which includes the completion date).
(4) The Vendor agrees that it will supply to the purchaser all of the things that are necessary for the continued operation of the enterprise of which the vendor is able to supply…
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9, and
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
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