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Ruling
Subject: GST and GST-free supply
Question
Is the supply of the property from Entity A to Entity B a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
Entity A is the registered proprietor of the property.
The property is a commercial building.
Entity A and Entity B entered into a contract for the sale of the property.
After entering into the Contract the parties agreed to amend the terms to provide, amongst other things, that:
· the settlement date will be extended,
· Entity A will lease the property to Entity C commencing prior to settlement.
· Entity A will make a GST-free supply of the property to Entity B under Subdivision 38 J of the GST Act.
The lease was implemented on the basis that Entity A would be entitled to all rent paid by Entity C pursuant to the lease up until the date of settlement of the property.
Entity A and Entity B are registered for GST.
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Summary
The supply of the property from Entity A to Entity B is a GST-free supply of a going concern under section 38-325 of the GST Act.
Detailed reasoning
A supply is taxable where section 9-5 of the GST Act is satisfied. That is where there is a supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia, and you are registered or required to be registered for GST. However, the supply is not a taxable supply to the extent it is GST-free or input taxed.
In this circumstance, Entity A supplies the property for consideration, makes the supply in furtherance of the enterprise they carry on, the supply is connected with Australia as the property is in Australia, and Entity A is registered for GST. However, the supply of the property is only taxable to the extent it is not GST-free or input taxed.
There are no provisions that result in the supply of the property being input taxed but consideration needs to be given as to whether the supply of the property is GST-free pursuant to subsections 38-325 (1) and (2) of the GST Act.
These sections provide that:
The supply of a going concern is GST-free if:
· the supply is for consideration, and
· the recipient is registered or required to be registered, and
· the supplier and the recipient have agreed in writing that the supply is of a going concern.
A supply of a going concern is a supply under an arrangement under which:
· the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and
· the supplier carries on, or will carry on, the enterprise until the day of supply.
In this situation the supply of the property is for consideration, Entity B is registered for GST, Entity A and Entity B have agreed in writing that the supply of the property (leasing enterprise) is a supply of a going concern. Furthermore, the supply of the property (leasing enterprise) is under an arrangement which Entity A supplies to Entity B all the things that are necessary for the continued operation of the leasing enterprise, and Entity A will carry on the leasing enterprise until the day of supply of the property to Entity B. Hence, all the requirements under subsections 38-325 (1) and (2) of the GST Act are satisfied and the supply of the property (leasing enterprise) will be a GST-free supply of a going concern.