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Edited version of your written advice
Authorisation Number: 1013042746648
Date of advice: 30 June 2016
Ruling
Subject: Goods and services tax - going concern, GST-free supply
Question 1
Whether the sale of the land by Entity A to Entity B for $X million is a GST-free supply of a going concern.
Answer
Yes
Relevant facts and circumstances
Entity A is registered for GST and owns certain land.
Entity A has entered into a Project Development Agreement (PDA) with Entity C to develop the land.
Pursuant to the PDS, Entity C provides to Entity A the following development services:
a) Obtaining the necessary or desirable approvals for the subdivision of the land;
b) Procurement of the carrying out of works both on and off the land;
c) The dedication of parts of the land;
d) The subdivision of the land;
e) The procurement of the promotion, marketing, sale and management of the conveying of the sale lots; and
f) The engagement of a builder to construct dwellings and associated improvements on the land.
Pursuant to the PDA, a number of lots have been created from the land which Entity A has sold.
Entity A proposes to sell the remaining land (the land less those lots sold by Entity A) and novate its interest in the PDA to Entity B for $X million. Entity B agrees to buy the remaining land and to enter into the PDA Novation Deed with Entity A.
The PDA Novation Deed provides, among other things:
● Entity A novates its rights and obligations under the PDA to Entity B, and
● Entity B is taken to be a party to the PDA instead of Entity A in relation to all of the rights and obligations of Entity A in relation to the development of the remaining land under the PDA.
At the time of sale of the remaining land, completed lots and land packages [being part of the remaining land] are available and being marketed for sale to the public under the PDA.
It is estimated that additional lots can be created [or developed] from the remaining land after the sale pursuant to the novated PDA.
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 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
A New Tax System (Goods and Services Tax) Act 1999 section 9-20
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
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).
Section 38-325
Section 38-325 provides:
(1) The *supply of a going concern is GST-free if:
(a) the supply is for *consideration; and
(b) the *recipient is *registered or *required to be registered; and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
(2) A supply of a going concern is a supply under an arrangement under which:
a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and
b) 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).
Pursuant to the PDA, Entity C provides the following development services to Entity A:
a) obtaining the necessary or desirable approvals for the subdivision of the land;
b) procurement of the carrying out of works both on and off the land;
c) the dedication of parts of the land;
d) the subdivision of the land;
e) the procurement of the promotion, marketing, sale and management of the conveying of the sale lots; and
f) the engagement of a builder to construct dwellings and associated improvements on the land.
Pursuant to the PDA, Entity A has, among other things:
● the benefits of receiving the development services from Entity C, and
● the obligations to pay a development service fee to Entity C upon settlement of developed lot
in relation to the land.
Upon completion of the development of the land, a number of lots will have been developed.
At the time of sale of the remaining land, Entity A has sold a number of lots developed in the land under the PDA and land packages [being part of the remaining land] are available and being marketed for sale to the public under the PDA.
For GST purposes, Entity A carries on an enterprise of developing the land under the PDA before selling the remaining land. That is, Entity A carries on the enterprise until the day of sale of the land.
Further, Entity A makes a supply of the remaining land to Entity B for consideration upon selling the land to it.
The PDA Novation Deed provides, among other things:
● Entity A novates its rights and obligations under the PDA to Entity B, and
● Entity B is taken to be a party to the PDA instead of Entity A in relation to all of the rights and obligations of Entity A in relation to the development of the remaining land under the PDA.
From the day of settlement, Entity B stands in the shoes of Entity A in relation to the development of the remaining land under the PDA.
For GST purposes, from that day, in addition to making a supply to Entity B of the remaining land, Entity A makes a supply to Entity B of its rights and obligations, among other things, under the PDA in the development of the remaining land.
Therefore, from that day, Entity B can carry on the enterprise of developing the remaining land under the PDA.
For GST Purposes, the sale of the remaining land and the novation of the PDA by Entity A to Entity B constitute an arrangement under which:
(a) Entity A supplies to Entity B all of the things that are necessary for the continued operation of the enterprise of developing the remaining land under the PDA; and
(b) Entity A carries on the enterprise until the day when it supplies those things to Entity B.
Therefore, the sale of the remaining land and the novation of the PDA by Entity A to Entity B constitute a going concern.
As Entity A has agreed with Entity B in writing that the supply of the going concern is for $X million, the supply is GST-free.
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