Edited version of your written advice

Authorisation Number: 1013066932457

Date of advice: 10 August 2016

Ruling

Subject: GST and sale of property as GST-free supply of a going concern

Question

Will the sale of a property be a GST-free supply of a going concern under Subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the property will be a GST-free supply of a going concern under Subdivision 38 - J of the GST Act.

Relevant facts and circumstances

• You are carrying on an enterprise of leasing commercial properties and registered for goods and services tax (GST).

• You will sell a commercial property to a purchaser who is registered for GST.

• The sale price is $XX,XXX,XXX.

• The contract for sale provides that the Property is sold subject to the Tenancies.

• On settlement the seller is deemed to have assigned to the buyer and the buyer is deemed to have taken an assignment of the tenancies.

• A new lease will be entered into before completion of the sale contract between you as lessor and a lessee.

• The vacancies in the commercial property have been actively marketed.

• Both you and the purchaser agree that the sale of the property is a GST-free supply of a going concern.

• You will carry on the enterprise constituted by the property until the settlement.

• The seller will supply all things necessary for the continued operation of an enterprise constituted by the property.

Relevant legislative provisions

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

Reasons for decision

A supply is a GST-free supply of a going concern when all the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

Subsection 38-325(1) of the GST Act provides that the supply of a going concern is GST-free if:

• the supply is for consideration; and

• 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 purchaser will provide consideration to you for the supply of the property. The purchaser is registered for GST. Both you and the purchaser have agreed in writing that the supply is of a going concern as per the contract for sale. Therefore, the requirements of subsection 38-325(1) of the GST Act have been satisfied.

Subsection 38-325(2) of the GST Act 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 a larger enterprise carried on by the supplier)

Supply under an arrangement

Although the word arrangement is not defined in the GST Act, Goods and Services Tax Ruling GSTR 2002/5 explains at paragraph 19 that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contract which comprise a single arrangement provided the things supplied relate to the 'identified enterprise'.

An arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made.

We consider that the Contract for Sale between you and the purchaser will be considered as an arrangement that satisfies the requirements of subsection 38-325(2) of the GST Act.

Identified Enterprise

Under paragraph 38-325(2)(a) of the GST Act, you should supply to the purchaser all the things necessary for the continued operation of an 'identified enterprise'.

Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). Once the enterprise is identified, it is the supply in relation to that enterprise that must meet the requirements of subsection 38-325(2) of the GST Act. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

In this case, you are carrying on an enterprise of leasing commercial properties and will supply the leasing enterprise to the purchaser.

Supply all the things necessary for the continued operation of an enterprise

Subsection 38-325(2) of the GST Act requires that the supplier must supply all of the things necessary for the continued operation of the enterprise. The requirements in paragraph 38-325(2)(a) and (b) of the GST Act apply to the 'Identified enterprise".

In relation to the meaning of the phrase 'all of the things necessary for the continued operation of an enterprise', paragraph 80 of GSTR 2002/5 states:

The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.

Furthermore, paragraph 75 of GSTR 2002/5 identifies two elements that are essential for the continued operation of an enterprise:

• the assets necessary for the continued operation of the enterprise, and

• the operating structure and process of the enterprise.

It is clear from paragraph 75 of GSTR 2002/5 that what is transferred must be more than the business assets of an identified enterprise. As explained above, you are required to supply all the things necessary for the continued operation of the enterprise of leasing commercial properties.

Paragraph 31 of GSTR 2005/5 explains that the term 'operation of an enterprise' is different to that of 'carrying on an enterprise'. As defined in section 195-1, 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of an enterprise while operation of an enterprise requires something more than this. The activity must be one which can properly be described as a business or undertaking capable of being handed over to the transferee in such a state that it may be carried on by the transferee if it so wishes.

A new lease will be entered into between you as lessor and the lessee before the completion of the sale contract. The vacancies in the property have been actively marketed. Therefore, it is our view based on the facts provided that all the things necessary for the continued operation of the enterprise will be supplied under the arrangement.

Enterprise carried on until the day of supply

Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be carried on, by the supplier until the day of supply. All of the activities of the enterprise must be active and operating on the day of supply.

Paragraph 141 of GSTR 2002/5 advises that the activities must be capable of continuing after the transfer to the new ownership. The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. Paragraph 161 of GSTR 2002/5 explains that the day of supply is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier.

You will continue your leasing enterprise under the arrangement until the completion date as per the contract for sale.

Conclusion

Taking all the above facts into consideration, it is our view that the sale of the property will be a GST-free supply of a going concern under Subdivision 38-J of the GST Act.

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