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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051331774085

Date of advice: 25 January 2018

Ruling

Subject: GST and the sale of real property

Question

Will you be making 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) when selling the premises situated at a particular location (the Property)?

Answer

Yes.

Relevant facts and circumstances

Relevant legislative provisions

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

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Note: In these reasons for decision, unless otherwise stated,

Issue

The sale of a rental property as a supply of a going concern.

Summary

You will be making a GST-free supply of a going concern under section 38-325 when selling the Property.

Detailed reasoning

Will you be making a supply of a going concern?

Subsection 38-325(2) defines a supply of a going concern as a supply under an arrangement under which:

It follows from requirements (a) and (b) above that these requirements need to be satisfied in relation to an identified enterprise.

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a ‘supply of a going concern’ GST-free? provides the ATO view about what constitutes a ‘supply of a going concern’ for the purposes of section 38-325. The Ruling, at paragraph 107A, states that an identified enterprise may consist solely of the leasing of a property to a tenant or tenants. Such an activity is an enterprise under paragraph 9-20(1)(c). On this basis, we consider that the identified enterprise in your case is the leasing of the Property.

Paragraph 38-325(2)(b) includes the further requirement that the supplier carries on, or will carry on, the enterprise until the day of the supply. Accordingly, because in your case the Property is currently vacant and may still be vacant on the day of the supply, we need to establish whether you will be carrying on the enterprise of leasing the Property until the day of the supply.

You have advised that at all times during your ownership, the Property has been either leased or marketed for lease, but is not currently tenanted. The last tenancy ended on a certain date and since then you have engaged a real estate agent to lease the Property (which is still currently listed for lease on the agent’s website). Furthermore, the contract you entered into with the Purchaser for the sale of the Property acknowledges that you will be actively pursuing tenants to enter into a new lease to lease all or part of the Property until completion. If a new lease, approved in writing (approval which shall not be unreasonably withheld or delayed) by the Purchaser, is signed before that time, the Property will be supplied subject to the new tenancy.

As explained at paragraph 151 of GSTR 2002/5, the activity of leasing a building which has previously been leased to a tenant remains an ‘enterprise’ of leasing for the purposes of section 9-20 during the period of temporary vacancy when a new tenant is being actively sought by the building owner (an example is provided at paragraphs 155 and 156 of the Ruling). This enterprise continues to operate during that time. Therefore, in your case you will be carrying on the enterprise of leasing the Property until the day of the supply.

From the above analysis, applying the principles explained in GSTR 2002/5 to the facts of your case (as submitted to us), we consider that you will be making a supply of a going concern when selling the Property.

Is the supply GST-free?

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

In your case, you will be selling the Property for consideration of $...M and you have agreed in writing with the Purchaser that the supply is of a going concern. Therefore, assuming that the Purchaser will be registered for GST at the time of settlement, your supply of the going concern will be GST-free.


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