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Edited version of your written advice
Authorisation Number: 1051482738960
Date of advice: 12 February 2019
Ruling
Subject: GST and sale of property
Question
Was your supply of the property a sale of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Service Tax) Act 1999?
Answer
Yes
Relevant facts and circumstances
You are registered for GST.
On ddmmyyyy, you contracted to sell the property to the purchaser.
In preparation for a plan of subdivision, three separate proposed lots had been identified.
The lots to be sold were subject to three leases.
Subdivision was approved on ddmmyyyy.
The GST table in the contract states that the sale is a going concern and the buyer is registered for GST.
The sale price was $xxxx with settlement occurring on ddmmyyyy.
The lease schedule in the Contract provides that there are leases to be assigned and the details of the leases to be assigned are set out in the lease schedule of the contract.
At settlement, the subdivided lots were supplied along with the designated leases.
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 38-325
Reasons for decision
Note: In this ruling, unless otherwise stated,
● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
● all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au
● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act
Under section 9-5, an entity makes a taxable supply if:
● it makes a supply for consideration
● the supply is in the course or furtherance of an enterprise that it carries on
● the supply is connected with the indirect tax zone (Australia), and
● the entity is registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
Your supply of the property meets the conditions of section 9-5 and will not be input taxed to any extent. Therefore it was a taxable supply except to the extent that it was GST-free.
Section 38-325 deals with the supply of a going concern.
Subsection 38-325(2)
Subsection 38-325(2) provides that a supply of a going concern is a supply:
● under an arrangement under which:
n the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and
n the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of the larger enterprise carried on by the supplier).
Supply under an arrangement
Paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5; Goods and services tax: when is a ‘supply of a going concern’ GST-free? (GSTR 2002/5) explain that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement.
You supplied the property, which was subject to three leases under a contract and therefore you met this criteria.
Supplier supplies all things necessary for the continued operation of an enterprise
Paragraph 38-325(2)(a) requires that you supply all things necessary for the identified enterprise.
The enterprise
As explained in paragraph 29 of GSTR 2002/5, subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation.
For each of the lots, at settlement, the property was subject to a lease. The lease of the property was the identified enterprise for the purposes of paragraph 38-325(2) (a).
All things necessary
Paragraphs 74 and 75 of GSTR 2002/5 state:
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.
Under a leasing enterprise you need the property and a lease. Under the contract you supplied the lots, together with the leases to the purchaser and therefore you supplied all things necessary for the leasing enterprise to continue.
Supplier carries on the enterprise until the day of the supply
For each of the lots, you continued to lease the property until the day of the supply. Therefore your supply of the property satisfied this requirement.
Therefore, your supply of each of the lots satisfied the requirements of section 38-325(2).
Subsection 38-325(1)
Subsection 38-325(1) provides that the supply of a going concern is GST-free if:
● the supply is for consideration
● 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.
Your supply of the property satisfied the requirements of subsection 38-325(1) in that:
● you received consideration of $xxxx
● the recipient was registered for GST and
● you agreed in writing that the supply is a supply of a going concern.
Conclusion
As your supply of the property satisfied the requirements of subsections 38-325(1) and (2), your supply was a supply of a going concern for the purposes of section 38-325.
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