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Edited version of your written advice
Authorisation Number: 1012985613558
Date of advice: 31 March 2016
Ruling
Subject: GST-free supply of a going concern
Question
Was the supply by Entity A to the Buyer on completion of the Property Contract 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)?
Answer
Yes, the supply by Entity B under the terms of the Property Contract was a GST-free supply of a going concern because all the requirements of section 38-325 of the GST Act were satisfied as follows:
• Entity B operated a leasing enterprise which was capable of being supplied as a going concern for GST purposes
• Entity B sold the Property to the Buyer with the existing tenancies intact (Units A and C). Since Unit B was vacated, it had been actively marketed for lease. As such, Entity B supplied to the Buyer all of the things that are necessary for the continued operation of the identified enterprise under paragraph 38-325(2)(a) of the GST Act
• Entity B continued to carry on the enterprise until completion of the Property Contract and satisfied the requirement under paragraph 38-325(2)(b) of the GST Act, and
• the supply is for consideration, the Buyer is registered for GST and both parties agreed in writing that the supply is of a going concern, satisfying the requirements of paragraphs 38-325(1)(a), 38-325(1)(b) and 38-325(1)(c) of the GST Act.
Relevant facts
Entity B owned the Property and agreed to sell the Property to the Buyer on the terms set out in the Property Contract.
The Property consisted of three separate retail tenancies.
• Unit A was to Entity X. The lease commenced on a particular date for a term of 1 year with an option of a further year. The first year's rent is a particular amount plus GST.
• Unit B was leased to Entity Y under a lease dated a particular date. This tenancy was vacant at Completion and had been since a few months before Completion.
Entity B actively marketed Unit B for lease up until completion by placing a 'for lease' sign on the premises and informally listing the tenancy with a real estate agent. There have been a significant number of enquiries regarding the vacant tenancy.
• Unit C was leased to Entity A, a related party, on the terms of a Business Licence.
The Business Licence contains the following:
Entity B was carrying on a retail business at the Property.
Entity B granted Entity A, a licence to enter and use the premises together with a licence to use certain items of plant and equipment, fittings and fixtures and goodwill (Licenced Assets) so as to conduct the retail business.
Entity A pays to Entity B the occupation fees in respect of the right to occupy the premises and in respect of the right to use the plant and equipment, fittings and fixtures, and goodwill.
Simultaneous with the sale of the Property, Entity A and Entity B sold the Business assets to the Purchaser, an entity related to the Buyer, on the terms set out in the Business Contract.
Under the terms of the Business Contract, Entity A agreed to sell assets it owns and used in carrying on the Business including its rights under the Business Licence.
The Entity B agreed to sell the goodwill of the Business and other Licensed Assets and its rights under the Business Licence to the Purchaser on the terms set out in the Business Contract.
The Business Contract also provides that Entity B, as the lessor of the Business Premises, consent to the assignment of the Occupation Rights by Entity A to the Purchaser.
The Property Contract contains the following clauses:
The present use of the Property as retail shops.
The Property is sold subject to leases detailed in the Schedule, which are:
• Lease 1 to Entity X
• Lease 2 to Entity A
The Purchase Price is a certain sum.
Entity B and the Buyer agree that the sale of the Property constitutes the supply of a going concern.
Entity B, covenant that they will carry on the going concern until Completion.
Completion of the agreement is subject to completion of the Interdependent Contracts and Completion must be effected contemporaneously with the completion under the Interdependent Contracts. The Interdependent Contracts are:
• the sale contract for the sale of another property
• the Business Contract
Completion of the Business and Property Contracts occurred recently.
The Entity B operated the leasing enterprise up to the completion date.
The Entity B and the Buyer are both registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1).
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(2).
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