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Ruling

Subject: goods and services tax and going concerns

Question

Will you be entitled to an input tax credit on your purchase of the property?

Answer

Yes.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are registered for GST.

You will purchase a property at a location in Australia (the property) from a certain entity (the vendor)

The vendor is registered for GST

The vendor leases out the property to a third party.

The vendor has been leasing out the property on a regular or continuous basis.

The contract for sale indicates that the property will be sold to you with vacant possession and that the sale will not be subject to existing tenancies.

The vendor will lease out the property up to the time of sale.

In the contract of sale, no mark has been put in the box that is next to the words 'GST-free because the sale is the supply of a going concern' and a certain clause of the contract of sale provides that you and the vendor agree that the sale of the property to you is not the supply of a going concern. This indicates that the vendor and you have not agreed in writing that the sale of the property to you will be the supply of a going concern.

The contract of sale does not indicate that the vendor and you agree that the margin scheme will be used to calculate GST on the sale of the property.

You will lease out the property on a regular or continuous basis.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

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

A New Tax System (Goods and Services Tax) Act 1999 section 75-20

Reasons for decision

Summary

You will be entitled to an input tax credit on your purchase of the property because the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) will be satisfied.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered or *required to be registered.

(*Denotes a term defined in section 195-1 of the GST Act)

Creditable purpose

Subsection 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you acquire it

in carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the extent

that:

(a) the acquisition relates to making supplies that would be *input taxed;

or

(b) the acquisition is of a private or domestic nature.

You will acquire the property in carrying on your leasing enterprise.

Your acquisition of the property will not relate to making supplies that would be input taxed.

Your acquisition of the property will not be of a private or domestic nature.

Hence, you will acquire the property for a creditable purpose and therefore the requirement of paragraph 11-5(a) of the GST Act will be satisfied.

Taxable supply

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

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, the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act will be satisfied. That is, the vendor will supply the property to you for consideration and in the course or furtherance of the enterprise that it carries on. The supply of the property to you will be connected with Australia as the property is located in Australia and the vendor is registered for GST.

There are no provisions in the GST Act under which the sale of the property to you will be an input taxed supply.

Therefore, what remains to be determined is whether the sale of the property to you will be a GST-free supply.

Going concerns

Subsection 38-325(1) of the GST Act states:

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.

Subsection 38-325(2) of the GST Act 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 part of a larger enterprise carried on by the supplier).

The vendor in your case is carrying on a property leasing enterprise.

In accordance with paragraph 108 of Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free?, all of the things necessary for the continued operation of this enterprise are the property and the lease on the property.

The vendor will supply to you the property.

The contract of sale indicates that the sale of the property will be with vacant possession and that the sale will not be subject to existing tenancies. Based on this information, the vendor will not transfer the existing lease to you.

Therefore, the vendor will not supply to you all of the things necessary for the continued operation of its property leasing enterprise. Hence, the requirement of paragraph 38-325(2)(a) of the GST Act will not be satisfied.

Therefore, the vendor will not supply a going concern to you.

Hence, the sale of the property to you will not be a GST-free supply under subsection 38-325(1) of the GST Act.

There are no other provisions in the GST Act under which the sale of the property to you will be a GST-free supply.

Therefore, as all of the requirements of section 9-5 of the GST Act will be satisfied, the sale of the property to you will be a taxable supply. Hence, the requirement of paragraph 11-5(b) of the GST Act will be satisfied.

Consideration

You will provide consideration for the supply of the property to you. Hence, the requirement of paragraph 11-5(c) of the GST Act will be satisfied.

GST registration

You are registered for GST. Hence, the requirement of paragraph 11-5(d) of the GST Act will be satisfied.

Conclusion

As all of the requirements of section 11-5 of the GST Act will be satisfied, you will make a creditable acquisition of the property. Therefore, you will be entitled to an input tax credit on your purchase of the property.

(This advice is based on the assumption that you and the vendor will not agree in writing that the margin scheme will be used to calculate GST on the sale of the property to you. If the margin scheme is used to calculate GST on the sale of a property, the purchaser is denied an input tax credit)

You will need to obtain a tax invoice from the vendor in order to claim the input tax credit. The input tax credit will be claimable in the activity statement for the tax period in which settlement occurs provided that you hold a tax invoice when you lodge that activity statement.