Edited version of private advice

Authorisation Number: 1052144075974

Date of advice: 19 July 2023

Ruling

Subject: GST - sale of a going concern

Question

Did the sale of the commercial property qualify as a GST-free sale of a going concern in accordance with section 38-325?

Answer

No. The sale of the commercial property did not qualify as a GST-free sale of a going concern in accordance with section 38-325.

This ruling applies for the following periods:

Financial year ending 30 June 2021, to

Financial year ending 30 June 2026

The scheme commences on:

The date this notice of decision is issued

Relevant facts and circumstances

All legislative references are to A New tax System (Goods and Services Tax) Act 1999 unless other wise stated.

Entity 1 entered into a contract of sale with entity 2 for entity 2 to purchase a commercial property.

The contract of sale showed the sale price as well as the words "Plus GST" had been added.

The settlement statement showed that goods and services tax (GST) was included as per the contract of sale.

There was no mention in the contract of sale, or any other documentation provided, that indicated that the two parties to the contract had agreed in writing, prior to the date of settlement, that the sale of the commercial property would be a GST-free sale of a going concern.

Both entities hold Australian Business numbers (ABN) and are registered for GST.

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

Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that in the case of a supply which would otherwise be taxable, or input taxed, the supply is GST-free if it is supplied under an agreement for the supply of a going concern.

Section 38-325 states:

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 off the things 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 part of a larger enterprise carried on by the supplier).

All these elements must be satisfied for the supply to be a GST-free sale of a going concern.

In this case, the supply of the commercial property by entity 1 was for consideration and the recipient was registered for GST. However, neither the contract of sale or any other documentation showed that there was an agreement in writing between the supplier and the recipient of the commercial property that the supply was a going concern.

Therefore, all of the elements of subsection 38-325(1) have not been satisfied and, as a result, the sale of the commercial property did not qualify as a GST-free sale of a going concern.

We do not need to consider whether the requirements under subsection 38-325(2) would be satisfied as part of this supply because, as one of the requirements in subsection 38-325(1) has not been met, the supply of the commercial property cannot meet all of the requirements under the law to qualify as a GST-free supply of a going concern.

Under section 9-5, an entity makes a taxable supply where the supply:

1.    is made for consideration; and

2.    is made in the furtherance of an enterprise being carried on; and

3.    is connected with the indirect tax zone; and

4.    is made by a supplier who 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.

The sale of the commercial property by entity 1 was for consideration, was being made in the furtherance of an enterprise being carried on, was connected with the indirect tax zone and was made by a supplier that was registered or required to be registered for GST.

Conclusion

The commercial property was not a GST-free or input taxed supply. The sale of the commercial property was a taxable supply in accordance with section 9-5 and did not qualify as a GST-free sale of a going concern under section 38-325.

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