Edited version of private ruling

Authorisation Number: 1011819888206

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Ruling

Subject: Sale of tenanted shopping centres

Will the supply of the land and shopping centre buildings with existing leases be a GST-free supply of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer: Yes

The supply of the land and shopping centre buildings together with existing leases will be a GST-free supply of a going concern.

Relevant facts and circumstances

The entity is registered for goods and services tax (GST).

You are a member of a GST group.

You are supplying land and buildings comprising the shopping centres, together with the existing leases, to the purchaser.

The supply of each of the shopping centres is being made to a trustee of the respective Shopping Centre Trusts.

The transactions under the arrangements of the contracts are at arms length.

The identified business will be the leasing enterprise of the stated land and buildings and the assignment of the relevant leases.

You have supplied copies of the contracts of sale of the land for each of the shopping centres.

You have also supplied copies of the leases.

Each of the leases to be assigned will continue beyond the settlement period.

You advise that some of the shopping centres have a small number of vacant tenancies which are actively being marketed by a leasing agent.

Each contract for the sale of the shopping centres provides for the sale of the land, buildings service contracts and assignment of its tenancy leases, with appropriate GST clauses in the Special Conditions indicating agreement between the vendor and purchaser that the sale is to be a supply of a going concern.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1).

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

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

Reasons for decision

Detailed reasoning

Whether or not a supply is a taxable supply depends on the supplier's circumstances and the arrangement. A supplier will make a taxable supply if all of the requirements of section 9-5 of the GST Act are met.  

Section 9-5 of the GST Act provides:

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 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.

In your case, based on the information provided, the supply meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because the entity is selling the shopping centres for consideration in the course or furtherance of its leasing enterprise, the supply is connected with Australia and the entity is registered for GST.

The supply of the shopping centre is not an input taxed supply under any provision of the GST Act or any other Act. Therefore, we need to determine whether the sale is a GST-free supply.

Section 38-325 of the GST Act 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 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).

In order to determine whether the sale of the shopping centre was a GST-free supply of a going concern, firstly it needs to be determined whether the sale is a supply of a going concern as defined in subsection 38-325(2) of the GST Act.

Paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act set out the requirements which need to be satisfied in relation to an identified enterprise.

Section 9-20 of the GST Act provides that an enterprise includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or the grant of interest in property (paragraph 9-20(1)(c) of the GST Act).

In this case, the identified enterprise for the purposes of subsection 38-325(2) of the GST Act is the leasing enterprise that the vendor carried on from the shopping centre.

Goods and Services Tax Ruling GSTR 2002/5 discusses a supply of a going concern for the purposes of section 38-325 of the GST Act and explains when the supply of a going concern is GST-free and provides:

30. Where the enterprise identified for the purpose of subsection 38-325(2) forms part of a larger enterprise, a supply is a 'supply of a going concern' when all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied.

Therefore, the vendor is required to supply to the purchaser all of the things that are necessary for the continued operation of this enterprise in order to satisfy the requirement of paragraph 38-325(2)(a) of the GST Act.

Paragraphs 72 and 73 of GSTR 2002/5 provide that the term "necessary" incorporates every attribute of an enterprise that is essential for the continued operation of the identified enterprise. What is 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 enterprise if the enterprise could not be operated by the purchaser in the absence of the thing.

GSTR 2002/5 provides that generally, all of the things that are necessary for the continued operation of a property leasing enterprise include the supply of the property and the benefit of the covenants under a lease.

Paragraph 151 of GSTR 2002/5 provides

151. The activity of leasing a building which has previously been leased to a tenant remains an 'enterprise' of leasing for the purposes of section 9-20 during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, where a building has not previously been leased to a tenant, but is being actively marketed, an 'enterprise of leasing' is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building.

In this case, the vacant tenancies are being actively marketed and on the date of settlement, the existing leases to the supermarkets, specialty shops, kiosks ATMs etc are to be assigned to the purchaser and will run beyond the settlement date. The service contracts, diligence materials, bank guarantees, warranties and, licences are also assigned to the purchaser.

Accordingly, the entity has supplied the purchaser with all of the things that are necessary for the continued operation of the leasing enterprises for each shopping centre. Therefore, the requirement of paragraph 38-325(a) of the GST Act was met. The entity will continue to operate the leasing enterprises up to the date of settlement as evidenced by the existing leases and therefore, the condition of paragraph 38-325(b) of the GST Act has been met.

Additionally, the supply of the leased shopping centres is for consideration and the purchasers are registered for GST. Moreover, under the terms of the contracts, the entity and the purchaser have agreed in writing that the supply is the supply of a going concern.

Therefore, the conditions of subsection 38-325(1) are met and the supply of each of the leased shopping centres is a GST-free supply of a going concern.