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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011822375185

    This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

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Ruling

Subject: Supply of a going concern

Question 1

Are you making a GST-free supply of a going concern, within the meaning of subsection 38-325 of the GST Act, when you sell a residential property development enterprise?

Answer: Yes.

Relevant facts and circumstances

You are registered for GST.

Following the receipt of a written offer, you intend to supply your entire residential property development enterprise to Entity A or its nominee.

You have provided the following description of your current situation:

    · You carry on the enterprise of developing land at a specific site.

    · The development includes a number of developed lots/titled lots (being lots that have a separate title and are therefore capable of being sold individually), some lots that are in the process of being developed or subdivided and some lots that are held for future development.

    · You have entered into a development management agreement with Entity B in respect of the development. Your interest in this development management agreement will be novated to Entity A as part of the supply of your residential development enterprise.

    · In addition to the supply of the land, you will facilitate the transfer to Entity A of:

      (a) the development management agreement with Entity B;

      (b) infrastructure works in relation to any of the lots;

      (c) works on any completed or partially completed lots;

      (d) development and subdivision approvals;

      (e) any other similar plans or approvals arising prior to settlement;

      (f) design plans including civil engineering and infrastructure plans;

      (g) marketing materials including domain names and potential customer information;

      (h) trademarks and other intellectual property;

      (i) rights of access; and

      (j) any uncompleted contracts for sale.

    · You have used and will continue to use all reasonable endeavours to ensure that all relevant agreements are sufficiently advanced to allow for continuous and uninterrupted construction from the settlement date.

    · There are some lots that are currently subject to contracts with third parties. These contracts for sale will not be terminated and it is intended that these contracts for sale will be transferred to Entity A as part of the transfer of the development enterprise.

You have stated that:

    · The supply of the residential property development enterprise will be made for consideration.

    · Entity A is registered for GST. If the enterprise is supplied to a nominee of Entity A, that nominee will be registered or required to be registered for GST.

    · The parties to the sale will agree in writing in the contract that the supply of the residential development enterprise is the supply of a going concern.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J.

Summary

You will make a GST-free supply of a going concern within the meaning of subsection 38-325 of the GST Act when you carry out the arrangements as described in your private ruling application.

Detailed reasoning

The supply of a going concern is GST-free where the requirements of subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met.

In this regard, you have confirmed that:

    · the supply will be made for consideration; and

    · Entity A or its nominee are registered or required to be registered for GST; and

    · the parties will agree in writing that the supply of the residential development enterprise is the supply of a going concern.

The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act, which states:

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).

    * Asterisk denotes a term defined in the GST Act

GST Ruling 2002/5 (GSTR 2002/5) provides guidance on the application of the going concern provisions.

Paragraph 29 of GSTR 2002/5 provides that it is necessary to identify the relevant enterprise in order to determine if all things necessary for the continued operation of an enterprise are transferred to the recipient of a supply.

You have stated that you consider that the relevant enterprise is the residential property development enterprise of developing the land specified.

This activity satisfies the definition of enterprise within section 9-20 of the GST Act.

Paragraph 75 of GSTR 2002/5 provides that there are two elements that are essential for the continued operation of an enterprise, being:

    · the assets necessary for the continued operation of the enterprise; and

    · the operating structure and process of the enterprise.

In addition to supplying land, you will also be supplying your interest in the development agreement, as well as infrastructure works, approvals, design plans, marketing materials, trademarks and other intellectual property and rights of access. You will also transfer any uncompleted contracts for sale.

It is considered that in the circumstances described here, you will supply all things necessary for the continued operation of the residential property development enterprise.

Paragraph 38-325(2)(b) of the GST Act requires that the supplier will carry on the enterprise until the day of the supply.

The offer made by Entity A requires that the enterprise be carried on by you until the day of supply. You have stated that you will continue to develop any lots under development and titled lots until settlement and that you will use reasonable endeavours to enable the uninterrupted operation of your enterprise by Entity A.

It is therefore considered that you will carry on the residential property development enterprise until the day of supply, and this advice is based on that assumption.

In the circumstances described above, you will make a GST-free supply of a going concern of a residential property development enterprise.

Titled lots

Sales transactions that have already been completed with third parties do not form part of the supply of the going concern. Past transactions that have been finalised are not part of an ongoing enterprise.

Where the incomplete contracts for sale are transferred to Entity A as part of the transfer of the development enterprise, it is considered that the supply is a GST-free supply of a going concern as the supply of the incomplete contracts becomes a part of the arrangement that is considered to be a GST-free supply of a going concern.


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