Edited version of private advice

Authorisation Number: 1051821467428

Date of advice: 29 March 2021

Ruling

Subject: GST and the supply of a going concern

Question 1

Are the supplies made by the Partnership to the Purchaser under the Contract, supplies that form part of an arrangement which constitutes a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, after considering the additional information provided, the supplies made by the Partnership to the Purchaser under the Contract are supplies that form part of an arrangement which constitutes a GST-free supply of a going concern for the purposes of section 38-325 of the GST Act.

Question 2

Are the acquisitions made by the Purchaser from the Partnership under the Contract, acquired as the result of a supply of a GST-free going concern to the Purchaser?

Answer

Yes, following on from Question 1, the acquisitions made by the Purchaser from the Partnership under the Contract, are acquired as a result of a supply of a GST-free going concern to the Purchaser.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The vendor (Partnership) is registered for Goods and services tax (GST) as a partnership.

On the Date of Contract, the Purchaser entered into a REIWA contract for sale of land or strata title by offer and acceptance (the Contract) with the Partnership for the purchase of Land.

The sale settled on Settlement Date.

The Land is made up of two parcels of land covering approximately XXX hectares.

Parcel 1 covered by the Development Plan comprises four precincts:

•         Precinct 1, containing XXX lots, have already been completed and sold;

•         The remaining precincts (2, 3 and 4) comprising XXX gross hectares (approximately) with planning approval for approximately XXXX lots;

•         To date XXX lots (within Precinct 2) have been created and sold, with the balance of approximately XXXX lots (within Precincts 2, 3 and 4) in the process of being developed;

•         Included within the lots completed in Precinct 2 are an established local shopping centre, medical centre, school, XX hectare lake, adventure park and parklands;

•         Within Precinct 2 are a Supermarket lot, a Liquor Store lot, and XX vacant residential lots which have been developed and separate titles issued;

•         The balance of Precinct 2 comprises approximately XXX lots;

•         Precinct 3 comprises approximately XXX lots; and

•         Precinct 4 comprises approximately XXXX lots.

Parcel 2 of XXX hectares (approximately) with potential for a further XXXX lots subject to rezoning and planning approval. Parcel 2 is not subject to the sale under the Contract being considered in this private ruling application. Therefore, this private ruling does not apply to the sale of Parcel 2.

The Contract of sale

The Partnership has entered into a contract of sale (Contract) where the Partnership is selling to the Purchaser, Parcel 1 along with the Property Chattels and various other rights and obligations and which is subject to various conditions, including a reference to this application for a private ruling.

Key features of the Contract include:

•         The Partnership is selling the land (referred to above as Parcel 1) which is comprised of three 'englobo lots', and separately titled lots comprising a Supermarket lot, a Liquor Store lot, and 24 vacant residential lots;

•         The Partnership is also selling the Property Chattels which comprises the sales office located on Parcel 1 together with all fixtures, fittings and loose furniture within that office;

•         The land is being sold subject to the Tenancies (being the Supermarket Lease, the Liquor Store Lease and the Agistment Lease), and must comply with all obligations under such Tenancies until Settlement;

•         The land is being sold subject to the Material Contracts and the Partnership must comply with all obligations under such Material Contracts until Settlement;

•         The land is being sold subject to the reservations and conditions in the Crown grant of land;

•         The land is being sold subject to a list of Specified Encumbrances;

•         The sale is conditional on a separate contract of sale being entered into by the owner of Parcel 2;

•         The Partnership assigns to the Purchaser the Material Contracts and the rights of the Partnership held under such Material Contracts;

•         The Partnership assigns to the Purchaser all Intellectual Property Rights (which includes any domain names, third party licences, statutory or common law rights relating to the development project and capable of being assigned or transferred);

•         The Partnership assigns to the Purchaser each Lot Sale Contract and the rights of the Partnership under each Lot Sale Contract;

•         Conditions that deal with the sale or transfer of any titled lot by the Partnership between Contract Date and Settlement Date (which essentially removes from the sale any such lots which are sold prior to Settlement by the Partnership);

•         Procedures to facilitate the transfer of an existing Water Licence to the Purchaser and, if required, as at settlement to transfer the rights and benefits under such Water Licence to the Purchaser;

•         The Partnership must, between Contract Date and Settlement Date, keep and maintain the Property;

•         An agreement between the Partnership and the Purchaser that the supplies made under the contract are under an arrangement which constitutes the supply of a going concern for the purposes of the GST law.

The Material Contracts are a reference to:

•         an Agreement with the Shire regarding deferral of subdivision approval conditions;

•         an infrastructure sinking fund agreement with the Shire;

•         a school site licence with the School; and

•         a school site deed of covenant with the School and associated deed of consent with a Bank.

The trading name has been identified as being held by an entity related to the Partnership, and this will either be transferred to the Purchaser via the intellectual property rights component of the contract, or if considered to fall outside this definition, will be transferred separately.

The Partnership and the Purchaser understand that any permits or approvals over the land will attach to the land and will be transferred as part of the sale.

All contracts entered into by the Partnership and which are current have been included within the Material Contracts.

There are no current contracts in existence for development works between the Partnership and service providers such as builders, surveyors, infrastructure works, etcetera.

The Partnership will be supplying to the Purchaser all contact details for entities engaged in the development works (including but not limited to suppliers such as: landscaping maintenance, engineering, planning and urban design, environmental, surveyor, and traffic consultant).

In an email response dated XXXX to a further information request by the ATO, the representative of the Partnership stated as follows:

I confirm that there was no development taking place at the time of sale. Development activities were not suspended as such - we just didn't require any further stock at the time. That was the case with almost all of our projects at some time over the last few years and particularly in 20XX.

Based on the facts above, a private ruling was issued to both the vendor and the purchaser on XXXX with reference number XXXX.

On XXXX, the vendor and purchaser lodged an objection to the Notice of Decision that was issued on XXXX.

Additional information was provided as follows:

•         The Partnership did not enter into long-term contracts with suppliers for the entire life of the whole project. The Partnership would, at each separate stage of the development, undertake a tender process to take advantage of market conditions and different works required for each stage.

•         As at the date of entering into the contract, and as at settlement, the following activities of the property development enterprise were being carried on and operated by the Partnership:

-        marketing and sales activities for the vacant residential lots;

-        maintenance of the lake and parklands including monitoring of mosquito levels;

-        ongoing landscaping;

-        property and strata management;

-        the continued employment of staff (general manager, sales staff, etc);

-        the Tenancies (being the Supermarket Lease, the Liquor Store Lease and the Agistment Lease).

•         In relation to the marketing activities, contracts of sale for two lots were entered into between the signing and settlement of the Contract and adjustments were made to the Purchase Price to reflect these sales.

•         In relation to the maintenance and property management activities, ongoing arrangements were in place with various suppliers including:

-        Entity 1 - regarding monthly landscape maintenance;

-        Entity 2 - regarding monthly lake and groundwater monitoring;

-        Entity 3 - for monthly mosquito monitoring; and

-        Entity 4 - commercial property manager.

•         The Contract was entered into subject to three tenancies. Copies of the three lease agreements were provided which included details as follows:

-        Lease 1 - Supermarket

•                                  Lessor - the Partnership

•                                  Lessee - Entity A

•                                  Term of lease - 15 years commencing XXXX

-        Lease 2 - Liquor Store

•                                  Lessor - the Partnership

•                                  Lessee - Entity A

•                                  Term of lease - 15 years commencing XXXX

-        Lease 3 - Agistment Lease dated XXXX

•                                  Lessor - the Partnership

•                                  Lessee - Individuals A and B

•                                  Term of lease - 3 years from date of lease contract

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 and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

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