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Edited version of your written advice
Authorisation Number: 1012894501843
Date of advice: 14 October 2015
Ruling
Subject: GST and the supply of property as a going concern
Question
Can your supply of the property be a GST-free supply of a going concern?
Answer
The-leased portions of the commercial and residential components of the Property can be supplied GST-free as a going concern, provided:
• the Purchaser is registered, or required to be registered, for GST at the time of settlement, and
• you and the Purchaser agree in writing, prior to settlement, that the supply is of a going concern.
If the residential component of the Property is supplied GST-free as part of the going concern, the Purchaser will be liable to an increasing adjustment pursuant to Division 135.
The-vacant part of the commercial component of the Property cannot be supplied GST-free as part of a going concern, as it is not being actively marketed.
The-vacant parts of the residential component of the Property cannot be supplied GST-free as part of a going concern, unless they are being actively marketed.
Relevant facts and circumstances
You are registered for GST
You own the Property.
On ddmmyyyy, you entered into a contract to sell the Property to the Purchaser for $.
The Purchaser is not registered for GST.
Settlement is scheduled for ddmmyyyy.
The Property is comprised of several commercial units and several residential units.
Some of the commercial units are leased to commercial tenants. Although, all the leases have expired, they are still paying a monthly lease rental, ongoing until further notice.
The other commercial units are vacant and you are not attempting to obtain tenants for these units.
Contract for sale
Clause xx provides that Property is sold subject to the tenancies.
Clause xx provides that the parties agree that the sale of the Property under this contract may be a Mixed Supply.
The contract for sale does not specify that all, or any, of the property is to be supplied as a GST-free going concern.
You provided the tenancy schedule as an attachment to the lease.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9.5
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
Reasons for decision
Note: In this ruling, unless otherwise stated,
• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act
Under section 9-5, an entity makes a taxable supply if:
• it makes a supply for consideration; and
• the supply is in the course or furtherance of an enterprise that it carries on; and
• the supply is connected with the indirect tax zone; 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:
• your supply of the commercial component of the Property will be a taxable supply to the extent that it is not GST-free. It will not be input taxed.
• your supply of the residential component of the Property will be an input taxed supply
Section 38-325 deals with the supply of a going concern. Subsection 38-325(1) 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, your supply of the Property will not satisfy the requirements of subsection 38-325(1). However, your supply of the Property will satisfy the requirements of subsection 38-325(1) if:
• the Purchaser is registered, or required to be registered, for GST at the time of settlement, and
• you and the Purchaser agree in writing, prior to settlement, that the supply is of a going concern.
Therefore, if you are able to satisfy the requirements of subsection 38-325(1), where the supply meets the requirements of subsection 38-325(2) it will be a GST-free supply of a going concern.
Subsection 38-325(2) 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
You will supply the Property, which is partly leased, under a contract of sale.
Supplier supplies all things necessary for the continued operation of an enterprise
Paragraph 38-325(2)(a) requires that you supply all things necessary for the identified enterprise.
The enterprise
As explained in paragraph 29 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), subsection 38-325(2) 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.
You currently lease the residential component of the Property and part of the commercial component of the Property. The lease of the Property is the identified enterprise for the purposes of paragraph 38-325(2)(a).
All things necessary
Paragraphs 74 and 75 of GSTR 2002/5 state:
74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.
75. Two elements are essential for the continued operation of an enterprise:
the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and
the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.
You will supply the Property, together with the existing commercial and residential leases to the Purchaser, thereby supplying all things necessary to the Purchaser.
Supplier carries on the enterprise until the day of the supply
Paragraph 150 of GSTR 2002/5 explains that 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.
Example 24 at paragraphs 152-154 of GSTR 2002/5 deals with partly tenanted buildings.
Paragraph 153 of GSTR 2002/5 explains that vacant parts of a building are required to be actively marketed, unless those parts of the building are temporarily unavailable while repairs, refurbishments or other activities 'requiring vacancy' take place.
Commercial component
A portion of the commercial component of the Property is subject to lease. You will continue to lease those parts of the Property until the day of the supply. Therefore, your supply of the leased portion of the commercial component of the Property will satisfy the requirements of section 38-325(2) of the GST Act.
As the vacant parts of the commercial component of the Property are not being actively marketed, they will not be part of the 'continued operation' of your leasing enterprise. Therefore, your supply of the vacant part of the commercial component of the Property will not satisfy the requirements of section 38-325(2).
Residential component
For the reasons detailed in the commercial component above, your supply of the leased portion of the residential component of the Property will satisfy the requirements of section 38-325(2). Similarly, your supply of the vacant parts of the residential component of the Property will not satisfy the requirements of section 38-325(2), unless they are being actively marketed.
Conclusion
Leased Property
The-leased portions of the commercial and residential components of the Property can be supplied GST-free as a going concern, provided:
• the Purchaser is registered, or required to be registered, for GST at the time of settlement, and
• you and the Purchaser agree in writing, prior to settlement, that the supply is of a going concern.
If the residential component of the Property is supplied GST-free as part of the going concern, the Purchaser will be liable to an increasing adjustment pursuant to Division 135.
Vacant property
The-vacant part of the commercial component of the Property cannot be supplied GST-free as part of a going concern, as it is not being actively marketed.
The-vacant parts of the residential component of the Property cannot be supplied GST-free as part of a going concern, unless they are being actively marketed.
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