Edited version of private advice

Authorisation Number: 1052413299440

Date of advice: 27 June 2025

Ruling

Subject: GST - sale of a going concern

Question 1

Will the sale of address (the Property) by you be a GST-free supply of a going concern in accordance with section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No

This ruling applies for the following period:

1 January 20XX - 30 July 20XX

The scheme commenced on:

XX XXX 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect, and you cannot rely on it. Find out more about when you can rely on your private ruling at ato.gov.au/relyonprivateruling.

You conduct a property development enterprise.

You are registered for GST since date.

Purchase of the Property

On date, you purchased a property located at address (the Property) for amount. This Property comprises of amount Hectares (number sqm) of undeveloped farmland.

You purchased the Property with the intention of subdividing it for sale as part of the property development enterprise planning permit (Permit number). The Property was originally a total of number hectares that had been subdivided into block A and Block B. You have purchased Block B.

When purchasing the Property some permits and plans were already in place.

Since purchasing the Property, you engaged various agencies connected to the subdivision of the main property from Lot letter into Stage number and Stage number. Both stages have been subdivided into smaller lots as per Permit number.

Stage number consists of number lots; stage number consists of number lots. The proposed stage number will consist of number lots.

Expected timeframe for the development:

•                x months to finalise final working drawings.

•                x months to prepare tender package for civil, and drainage works, and selection of final contractor.

•                x months before works begin.

•                x months

o        marketing for unsold lots

o        completion of civil works.

•                x months

o        land titled as per planning permit.

o        settle on property.

•                x months maintenance of property as required by council.

As referenced in the contract of sale for the Property, you will undertake the following actions to continue the development of the Property until such time as the property is sold:

•                Continuing with council discussions

•                Engagement of contractors

•                Obtaining quotes for civil works

•                Working with engineering consultants to obtain final drainage reports which will feed into the tender process for the development.

You have advised that as stage number will be subject to a proposed new council planning scheme, the drainage and contributions rules will be different. Due to the proposed changes, you have not proceeded with the actions.

Your town planner has advised that you may lodge the Application for Certification for Stages numbers, this will enable Council to refer the Plans of Subdivision to various referral authorities.

Presale contracts

Approximately number months after your purchase of the Property you engaged the services of number real estate agents to market and sell individual subdivided lots (the Subdivided Lots).

You have no contract with the real estate agents for their services to sell the Subdivided Lots and have not been charged for any services or advertising.

You entered into presale contracts to sell number lots of the Subdivided Lots (lots numbers). You have provided copies of the contracts as part of your private ruling application.

You have not received any deposits for the pre-sold lots and have not paid any funds for the advertising of the real estate agents for the selling of the pre-sold lots.

Due to current market prices, and the proposed plan to sell the Property, the remaining Subdivided Lots are no longer being advertised.

Sale of the Property

Due to the longer than expected timeframe (approximately number years) to receive the Planning Permit, you decided to sell the entire Property.

The Property was initially advertised for sale as an expression of interest through the same number real estate agencies engaged to sell the Subdivided Lots. Subsequently the Property was advertised online as well as on-site advertising. The Property is not currently advertised for sale. No fee has been charged by any of the real estate agencies and you have no contracts with the real estate agencies for the sale of the Property.

Draft sale contract

You provided a draft sale contract for the Property as part of your private ruling application.

As part of the sale of the Property, you will provide the following to the purchaser:

•                Approved plans and permits

•                Pre-sale contracts

•                Site drainage plan

•                Drainage strategy

•                Road hierarchy and servicing strategy

•                Feasibility revised in November date

•                Major suppliers including name and name.

There is no stipulation surrounding goodwill.

You have recently received an offer for the Property, you do not intend to accept the offer.

Assumption

The purchaser will be registered or required to be registered for GST at the time of settlement.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

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 (1)

A New Tax System (Goods and Services Tax) Act 1999 section 38-325 (2)

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

Reasons for decision

Issue

GST - sale of property

Question

Will the sale of the Property by you qualify as a GST-free supply of a going concern in accordance with section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Detailed reasoning

Section 9-40 provides that goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that 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 with the indirect tax zone (Australia); and

(d)           you are registered, or require to be registered.

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

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

In this case, there are no provisions in the GST Act under which the sale of the Property will be input taxed.

We will now consider whether the supply of the Property will be GST-free.

Supply of a going concern

A supply will be a GST-free supply of a going concern where all the requirements of section 38-325 are met.

This section 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 concernis 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).

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

Based on the facts provided and the assumptions made in this case the three elements in subsection 38-325(1) would be met. That is, the supply of the Property will be for consideration, the Purchaser will be registered for GST or required to be registered at the time of the supply (settlement date), and the Purchaser will agree in writing that the supply of the Property was a supply of a going concern.

Next, consideration needs to be given as to whether the requirements of subsection 38-325(2) have been satisfied.

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) explains what a 'supply of a going concern' is for the purposes of section 38-325.

A supply is defined in section 9-10. The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contract which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise, that is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the 'identified enterprise').

In addition, paragraph 29 of GSTR 2002/5 notes that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which the supplier must supply all the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

Paragraph 29A of GSTR 2002/5 states that these conclusions are consistent with the comments and findings of Justice Greenwood in Aurora Developments (which concerned the question of whether the supply of a particular residential development site was the supply of a going concern). Justice Greenwood stated that subsection 38-325(2):

...can only operate in circumstances where an 'enterprise' has been identified comprised of

particular activities (or a particular activity). An enterprise has content not just an objective.

Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done:

•                In the form of a business (paragraph 9-20(1)(a)).

•                In the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

•                By a charity (paragraph 9-20(1)e)).

Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that are 'necessary' for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing.

Further, paragraph 75 explains that 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.

Paragraph 80 of GSTR 2002/5 provides that the supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise if it chooses.

Paragraphs 149-150 of GSTR 2002/5 state:

Continued operation

149. The term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise.

150. A supplier is unable to supply all the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on' but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on' but is not operating.

The term 'operating of an enterprise' is different to that of 'carrying on an enterprise'. As defined in section 195-1, 'carrying on' and enterprise includes doing anything in the course of the commencement or termination of an enterprise while operation of an enterprise requires something more than this. The activity must be one which can properly be described as a business or undertaking capable of being handed over to the transferee in such a state that it may be carried on by the transferee if it so wishes. The business or undertaking must remain active and operating at the time of supply.

Paragraph 141 of GSTR 2002/5 provides that the supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

Application to the facts

You purchased the property on date with an existing plan of subdivision.

You have advised the following:

You purchased the property on date with an existing plan of subdivision, you planned to subdivide the property for sale as part of a property development enterprise.

You have advised the following:

After you purchased the Property, consultants were engaged to submit an amended planning application to council. This included: town planners, engineering consultants and vegetation consultants. You will sell the Property with the contracts for pre-sale, planning permits and drainage strategy.

You will sell the Property with the contracts for pre-sale, planning permits and drainage strategy.

You will continue the preliminary actions necessary to commence the development of the subject land through relevant council discussions, engagement of contractors, receiving quotes for civil works.

You engaged real estate agents to sell the subdivided lots, prior to the subdivision. You have entered into pre-sale contracts to sell number of the lots and have no contracts with any real estate agents for their services and you are no longer advertising the lots.

As stated above, a supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on' but is also operating.

We accept that you will carry out a number of activities in relation to the Property prior to the sale. However, the supply of a property development where only preliminary activities are ongoing but actual operations relating to the real property development have not commenced will not satisfy the requirements of subsection 38-325(2).

We have taken into account the above factors and consider the activities that will be undertaken by you prior to the sale to be commencement activities that need to be performed before the actual operation of a development enterprise can commence.

Based on the facts of the case, you will not be operating a development enterprise at the time of the supply. Therefore, you are unable to supply all of the things necessary for the continued operation of a development enterprise as required by paragraph 38-325(2)(a).

As all the requirements of section 38-325 have not been satisfied, the supply of the Property by the you to a Purchaser, pursuant to the draft Sale Contract, will not be a GST-free supply of a going concern.

There are no other provisions in the GST Act under which your sale of the Property will be GST-free.

Further information

Taxable supply

In this case, you will make the supply for consideration, the Property is located in the indirect tax zone, and you will be registered for GST at the time of the supply.

As discussed above, the supply of the Property will not be made in the course or furtherance of a development enterprise operated you. It remains to be determined whether the sale of the property will be in the course or furtherance of any other enterprise that the Vendor carries on (paragraph 9-5(b)).

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Commissioner's view on the meaning of enterprise for the purpose of entitlement to an Australian Business Number (ABN).

Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraph 10 of GSTD 2006/6 explains that the term 'activity or series of activities' for an entity can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity.

Paragraph 153 of MT 2006/1 discusses that the ABN Act and the GST Act do not define an 'activity or series of activities' and as such, these terms take their ordinary meaning. An 'activity' is essentially an act or series of acts that an entity does. Entities can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term 'activity, or series of activities' for an entity can range from a single undertaking including a single act to groups of related activities or to the entire operations of the entity.

In this case, you purchased the Property with intent to subdivide the Property, and you were registered for GST at the time of purchase. Therefore, you purchased the property for a creditable purpose.

Conclusion

Your sale of the Property will satisfy all the positive limbs of section 9-5. Furthermore, the supply of the Property (being vacant land) are neither GST-free nor input taxed. Therefore, your supplies of the Property will be a taxable as defined in section 9-5.

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