Edited version of private advice

Authorisation Number: 1052103397584

Date of advice: 31 March 2023

Ruling

Subject: GST - going concern

Question

Will you, XXX, 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 leasing enterprise together with the property at XXX (the Property)?

Answer

Yes, the supply of the leasing enterprise together with the property at XXX will be GST-free where all the requirements of section 38-325 of the GST Act are satisfied.

This ruling applies for the following periods:

DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

You are a discretionary investment trust and holds an active ABN X.

You are currently registered for Good and Services Tax (GST) and have been since DD MM YYYY.

The address of the property is X (the property).

The land was purchased in DD MM YYYY and has been continuously tenanted. The current lease agreement was made on DD MM YYYY and ends on DD MM YYYY. You have provided a copy of the lease agreement.

The current tenant of the X and in the lease agreement it states the permitted use is DD MM YYYY.

The purchaser of the property is X. You have stated that you and the purchaser are registered for GST.

The agreed purchase price of the property is $X, with X deposit. The settlement will take place X years after the contract of sale has been executed and exchanged.

The X settlement period is to allow the purchaser additional time to finance the purchase.

You explained that the leasing business will continue its operation after the transfer of ownership of the property and the existing lease agreement will transfer with the sale of the property.

You stated that there is an agreement in place between the seller and purchaser that the sale is a supply of a going concern.

You have provided the draft contract of sale. On page XXX of the document, the following statement has marked as applicable to the draft contract, 'this sale is not a taxable supply because the sale is GST-free because the sale if the supply of a going concern under section 38-325.'

In the draft contract of sale, the following clauses are included:

XXX

A copy of the current leasing agreement between you and the current tenant of the Property, XXX, is included in the draft contract of sale.

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 9-40

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

Reasons for decision

Goods and services tax (GST) is payable on taxable supplies.

Under section 9-5 of the GST Act, you make a taxable supply if:

(a)          You make a supply for *consideration; and

(b)          The supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)           The supply is *connected with the indirect tax zone (Australia); and

(d)          You are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:

(1)          The • 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.

(2)          A supply of a going concern is 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).

(Note: the * denote a defined term within the GST Act.)

For the sale of the Property, you will satisfy the requirements of subsection 38-325(1) of the GST Act if you sell the Property for consideration, the recipient is registered for GST at the time of settlement, and you have agreed in writing with the Purchaser that the supply is a sale of going concern.

The sale of the Property will also need to satisfy subsection 38-325(2) of the GST Act to be a GST-free supply of a going concern.

Paragraphs 38-325(2)(a) and (b) of the GST Act 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 Commissioner's view on what constitutes a 'supply of a going concern' for the purposes of section 38-325.

We consider that the identified enterprise in your circumstances is the XXX.

Paragraph 107A of GSTR 2002/5 states in part that 'where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenant or tenants is all that is required to satisfy paragraph 38-325(2)(a)'.

Therefore, you will satisfy paragraph 38-325(2)(a) where you supply the Property with the lease in place.

Paragraph 38-325(2)(b) of the GST Act includes the further requirement that the supplier carries on, or will carry on, the enterprise until the day of the supply.

Therefore, you will satisfy paragraph 38-325(b) of the GST Act if the Property is leased until the day of supply.

Given that you carry on the leasing enterprise until the date of settlement of the sale contract for the Property and will be transferring the current lease to the purchaser, the sale of the Property is a GST-free supply of going concern if you proceed with the sale of the property as outlined above in the facts and circumstances.

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