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Edited version of your written advice
Authorisation Number: 1051285661259
Date of advice: 20 September 2017
Subject: GST and GST-free supply of a going concern
Is the supply of the property by the vendor the supply of a GST-free going concern?
Relevant facts and circumstances
The vendor is selling a property which is leased under licence.
The vendor will assign all their rights under the license at the time of supply.
In the event that the licence is terminated for any reason prior to settlement the vendor must then enter into a replacement lease or licence procured by the purchaser on substantially similar terms to the previous one.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
Reasons for decision
Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a 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.
According to the facts provided all conditions mentioned under subsection 38-325(1) will be satisfied at settlement.
However, for a supply to be a supply of a going concern subsection 38-325(2) of the GST Act also needs to be satisfied.
The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act as 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).
Until the day of the supply
In this case the vendor will carry on the licensing of the land until the day of the supply.
All of the things necessary
For the vendor to make a supply of a going concern it needs to be determined whether the vendor supplies 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.
Goods and Services Tax Ruling GSTR 2002/5 explains what is a supply of a going concern.
GSTR 2002/5 considers the meaning of the phrase all of the things that are necessary for the continued operation of an enterprise. In particular, paragraphs 73, 74 and 75 of GSTR 2005 state:
73. A thing is necessary for the continued operation of an identified enterprise if the enterprise could not be operated by the recipient in the absence of the thing. For example, a boat may be essential to the conduct of the businesses of a professional fisherman, a water-ski instructor, a deep-sea diving instructor or a repairer of underwater structures because, in most instances, the relevant business could not be conducted at all without a boat. The supplier must supply the boat for the continued operation of the enterprise.
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.
In this case the vendor will assign to the purchaser from settlement, all of its rights under the licence.
In the case that the licence is terminated for any reason prior to the settlement of a stage and it is a condition precedent that the purchaser has to find a replacement on substantially similar terms to the licence and the vendor enters into an agreement with the new licensee or tenant prior to settlement then we will consider this to be one of all of the things necessary supplied by the vendor for the supply to be considered a GST-free supply of a going concern.
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