Edited version of private ruling

Authorisation Number: 1011823061871

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Ruling

Subject: GST and supply of a going concern

Are you making a GST-free supply of a going concern within the meaning of subsection 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

Yes

Relevant facts

You carry on the enterprise of developing land. You are registered for GST.

Each development or enterprise you undertake has its own business structure.

Following a written offer you intend to supply your entire property development enterprise to a third party purchaser (the purchaser).

You are in the process of developing a master planned community. You are developing works at this community including superlots, group housing sites, the Village centre, a high school site and residential lots. Works have commenced on construction of infrastructure.

In addition to the supply of the land, you will also be transferring:

· Construction agreements

· Construction works on lots and infrastructure

· Development and subdivision approvals

· Design plans including civil engineering and infrastructure plans

· Marketing materials including domain names and customer information

· Trademarks and other intellectual property related to your interest in the master planned community

· Rights of access.

· You have used, and will continue to use, all reasonable endeavours to ensure continuous and uninterrupted construction up to and following the settlement date. This will also involve spending on third party development costs.

· Some development lots are subject to contracts for sale with third parties. Where these contracts have not settled they will be transferred as part of the transaction and the purchase price will be adjusted accordingly.

· Unsold lots at the time of settlement will also become part of the purchase.

Reasons for decision

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 follow the arrangements described in your private ruling application.

Detailed reasoning

You have agreed to sell your development enterprise. Your enterprise comprises the development of the master planned community, and includes selling off the development for a profit.

A supply of a going concern is a supply under an arrangement where the supplier supplies to the recipient all the things that are necessary for the continued operation of the enterprise, and the supplier carries on, or will carry on, the enterprise until the day of the supply.

All things necessary for continued operation

You supply all of the things that are necessary for the continued operation of an enterprise when you supply those things which will put the recipient in a position to carry on the enterprise.

In addition to supplying the land you will be supplying all things necessary to enable the continued and uninterrupted development operations of the enterprise such as construction works, approvals, rights of access, designs, sales information and so on. You will also be transferring your construction related agreements. The purchaser has requested assignment or novation of any relevant agreements, and this will satisfy the requirement that the relevant structure is supplied (see paragraph 51 GSTR 2002/5).

Therefore, we consider that you will supply all of the things necessary for the continued operation of the enterprise.

Carry on enterprise until the day of supply

To make a supply of a going concern you must carry on the enterprise until the day of the supply (whether or not as part of a larger enterprise you carry on).

You have advised that at the time of this ruling application works have commenced on the construction of infrastructure and bulk earthworks. Titles to lots within some stages are expected to be issued by the end of the year, and other stages are currently under construction. You have also advised that you are incurring ongoing third party development costs between now and the date of settlement. This indicates that your enterprise is actively continuing.

A number of the terms of the offer from the purchaser require that the enterprise continue to be carried on until the day of settlement. You are contractually obliged to continue working on the development enterprise until you are released from your obligations on the effective date of the transfer.

We consider therefore that you will carry on the property development enterprise until the day of the supply, and this advice that you supply a going concern is based on that assumption.

GST free supply of a going concern

For the supply of the going concern to be GST free the supply must be for consideration, the recipient must be registered or required to be registered, and the parties must have agreed in writing that the supply is of a going concern.

The supply by you is a supply for consideration, and the purchaser as recipient is required to be registered.

You and the purchaser have agreed in writing that the supply is of a going concern.

Therefore, in the circumstances described above, you will make a GST-free supply of a going concern in relation to the ongoing construction and marketing of the property development enterprise.

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

Where you transfer to the purchaser any lots that have not been settled, or have not been sold, this will be the supply of a going concern in relation to those lots.

We consider that you have engaged in an enterprise of developing these lots, and continue this enterprise by continuing to market these lots for sale and administer any contracts already signed. The supply of the unsold lots to the purchaser is a supply of assets as well as the operating structure, as the ongoing advertising and promotion has continued throughout. They form a part of your overall enterprise and are capable of being a supply of a going concern. You will continue your enterprise in relation to these lots until the day of the supply.

Where the other requirements for a GST free supply of a going concern are met (such as an agreement in writing that they are a supply of a going concern) then the supply of any lots under this arrangement will also be the supply of a going concern.