Edited version of private advice

Authorisation Number: 1052201106776

Date of advice: 6 December 2023

Ruling

Subject: GST - sale of going concern

Question 1

Will XXXX (Vendor) be making a GST-free supply of 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 subdivided lot at XXXX (Subdivided Lot)?

Answer

Yes. The supply of the Subdivided Lot will be considered a GST-free supply of a going concern under section 38-325 of the GST Act.

Question 2

Will XXXX (Vendor), be making a GST-free supply of 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 remaining lot after subdivision at XXXX (Lot A Balance Title) and XXXX (Lot B)?

Answer

Yes. The supply of Lot A Balance Title and Lot B will both be considered a GST-free supply of a going concern where all the requirements under section 38-325 of the GST Act are satisfied.

This ruling applies for the following periods:

1 July 2021 to 30 June 2025

The scheme commenced on:

6 December 2023

Relevant facts and circumstances

XXXX (The Purchaser) is a property development company incorporated in Australia.

The Purchaser is registered for GST.

XXXX (The Vendor) is registered for GST.

At the date of this request, the Vendor is the registered proprietor of the following parcels of land:

•         Lot A; and

•         Lot B

(collectively, the Property)

The Property will be subject to a primary production lease (Parent PPL) between the Vendor and XXXX (The Lessee). The Lessee is a family partnership. The Parent PPL is current in draft form. The form of the Parent PPL had been finalised between the Vendor and the Lessee and is expected to be executed by the parties without amendment. You request that this private ruling application be considered by the Commissioner on the basis that the Parent PPL is executed as of the date of this private ruling application.

The Lessee is not associated with the Vendor in any respect and the Parent PPL has a term of three years ending on 30 September 2025. In accordance with the terms of the Parent PPL and the Preceding PPL, the Vendor has been carrying on a leasing enterprise in respect of the Property since XXXX.

On XXXX, the Vendor entered into contracts of sale with the Purchaser for the sale of the Property (Contracts of Sale), with the contract for Lot A and a separate contract for Lot B. The contract for Lot B also included the sale of a separate title known as 'Lot C'. The Special Conditions of the Contracts of Sale stipulate that settlement is due 3 years from the day of execution, being XXXX (Settlement Date).

•         While Lot C is being transferred to the Purchaser in parallel with the Property (comprising Lot A and Lot B). Lot C is not subject to the Parent PPL or the Preceding PPL.

•         The supply of the Property will be made for consideration.

•         The Vendor and the Purchaser will agree in writing prior to settlement that each supply (with the exception of the supply of Lot C) is of a going concern.

Lot A

The Vendor will subdivide Lot A into two lots and one of the two lots will be settled with the purchaser at an earlier date.

The following steps will therefore be implemented prior to the Settlement Date in respect of Lot A and the Contract of Sale for Lot A:

•         The Subdivided Lot and Lot A Balance Title will both be created upon registration of the plan of subdivision for Lot A;

•         The Subdivision Lot PPL will be entered into between the Vendor and the Lessee in respect of the Subdivided Lot;

•         The Subdivided Lot will be transferred by the Vendor to the Purchaser; and

•         At the same time as the Subdivided Lot is transferred, the Subdivided Lot PPL will be novated to the Purchaser.

The terms of the Contract of Sale for Lot A are consistent with clause 28 of the Parent PPL in so far as they allow for an early subdivision of Lot A and an early supply of the newly created subdivided lot (Subdivided Lot) by the Vendor to the Purchaser prior to the Settlement Date.

Upon creating the Subdivided Lot (and prior to its transfer to the Purchaser), the Vendor will enter into a new primary production lease with the Lessee in respect of the Subdivided Lot on substantially the same terms as the Parent PPL (Subdivided Lot PPL). The Subdivided Lot PPL will apply to the entire land area within the new Subdivided Lot and will require the Lessee to continue to carry on primary production activities on the Subdivided Lot in conjunction with the primary production activities required to be carried on in respect of the balance of the Property.

The Subdivided Lot will be supplied by the Vendor to the Purchaser prior to the Settlement Date in conjunction with the novation of the Subdivided Lot PPL to the Purchaser. As a result of the novation, the Purchaser will continue to carry on the leasing enterprise as the new lessor following the early settlement.

Lot B

At the Settlement Date, the Lot A Balance Title, Lot B and Lot C will be transferred by the Vendor to the Purchaser and the Parent PPL (applicable to the Lot A Balance Title and Lot B only, amended to exclude the land area captured within the Subdivided Lot which is subject of the separate Subdivided Lot PPL) will be novated in favour of the Purchaser.

Given Lot C will not be subject to the Parent PPL, it will have a different character to the Lot A Balance Title and Lot B for GST purposes. It is accepted that will be a taxable supply by the Vendor to the Purchaser. You have not asked the Commissioner to rule on the GST treatment on the sale of Lot C.

The Vendor stated that they will carry on the primary production leasing enterprise with respect to the Subdivided Lot and the leasing enterprise with respect to the Lot A Balance Title and Lot B, until at least the day of the respective supplies.

The Vendor stated that they will enter into the Parent PPL with Collins for the purposes of undertaking primary production before the transfer of the Lot A Balance Title and Lot B to the Purchaser

The Vendor stated that they will enter into the Subdivided Lot PPL with Collins for the purposes of undertaking primary production before the transfer of the Subdivided Lot to the Purchaser

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

A New Tax System (Goods and Services Tax) Act 1999 Division 19

Reasons for decision

Section 9-5 of the GST Act sets out the requirements of a taxable supply and reads as follows:

You make a taxable supply if:

a)    You make the 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 within the indirect zone; 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.

A supply is GST-free as a supply of a going concern if it satisfies the requirements in section 38-325 of the GST Act, which are as follows:

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).

The Purchaser is registered for GST and the Vendor and the Purchaser will agree in writing prior to settlement that each supply (with the exception of the supply of Lot C) is of a going concern.

This means that the first three limbs are met under subsection 38-325(1) of the GST Act, in satisfying the conditions to be considered a GST-free supply of a going concern.

In relation to the transfer of the Subdivided Lot:

•         As the Vendor will enter into the Subdivided Lot PPL with the Lessee for the purposes of undertaking primary production before the transfer of the Subdivided Lot to the Purchaser, the Vendor will have commenced an enterprise of leasing under the Subdivided Lot PPL before the transfer in respect of that lot; and

•         The supply of the Subdivided Lot will be in conjunction with the supply of the Subdivided Lot PPL, novated in favour of the Purchaser, with the expectation that the Purchaser will continue to carry on the leasing enterprise.

In relation to the transfer of the Lot A Balance Title and Lot B:

•         As the Vendor will enter into the Parent PPL with the Lessee for the purposes of undertaking primary production before the transfer of the Lot A Balance Title and Lot B to the Purchaser, the Vendor will have commenced an enterprise of leasing under the Parent PPL before the transfers in respect of those lots:

•         While the Parent PPL will have been amended to exclude the land area contained within the Subdivided Lot, the Parent PPL will otherwise continue to apply to the Lot A Balance Title and Lot B: and

•         The supply of the Lot A Balance Title and Lot B will be in conjunction with the supply of the Parent PPL, novated in favour of the Purchaser, with the expectation that the Purchaser will continue to carry on the leasing enterprise.

Under subsection 38-325(2)(a) of the GST Act, the supplier will supply to the recipient all of the things that are necessary for the continued operation of an enterprise, which in this case is a leasing enterprise. The Vendor will provide the Purchaser with all relevant leases (Parent PPL and Subdivided Lot PPL) and properties (Subdivided Lot, Lot A Balance Title and Lot B) that will allow them to continue the operation of the leasing enterprise, with the Parent PPL having a term of three years ending on XXXX. The Subdivided Lot PPL will have a term date that would allow them to continue the operation of a leasing enterprise on this property.

The Vendor will carry on the leasing enterprise with respect to the Subdivided Lot and the leasing enterprise with respect to the Lot A Balance Title and Lot B, until at least the day of the respective supplies. This would therefore satisfy the second limb under subsection 38-325(2) of the GST Act.

Conclusion

All of the requirements are met under section 38-325 of the GST Act to allow the supply of the Subdivided Lot, Lot A Balance Title and Lot B to be considered GST-free supplies. The Vendor will operate the enterprise for the Subdivided Lot PPL before the transfer of the Subdivided Lot to the Purchaser and that the Vendor will carry on the leasing enterprise with respect to the Subdivided Lot and the leasing enterprise with respect to the Lot A Balance Title and Lot B, until the day of the respective supplies.

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