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Ruling

Subject: GST and supply of going concern

Question

Was the supply of your beneficial interest in the property a GST-free supply of a going concern?

Answer

No, the supply of your beneficial interest in the property was not a GST-free supply of a going concern. The supply was a taxable supply.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You owned a property in Australia which you held for the purpose of your property development enterprise.

Previously, you entered into a contract with another entity (the purchaser) to sell the property as a going concern.

While the property was transferred to the purchaser in its entirety, the contract specified that the consideration payable by the purchaser does not include a consideration for a portion of the property. As such, the purchaser did not acquire beneficial interest in that portion of the property which at all times remained with you.

You did not undertake any activities in relation to that portion of the property after the settlement of the contract occurred or commence another enterprise which involved that portion of the property. However, the purchaser did some planning and development work for you after the settlement date.

Recently, you sold your beneficial interest in that portion of the property to the purchaser for a specified amount. While protracted negotiations preceded your sale of the beneficial interest, you and the purchaser did not have a written agreement for the sale. Instead, you issued a tax invoice which included GST in the price.

The purchaser is registered for GST.

Relevant legislative provisions

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

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

Reasons for decision

Subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern.

Section 38-325 of the GST Act states:

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 the supply (whether or not as part of a larger enterprise).

(*denotes a term defined under section 195-1 of the GST Act).

While the portion of the property was transferred to the purchaser under the arrangement to sell the entire property as a going concern, the contract specifically excluded the supply of the beneficial interest in that portion of the property to the purchaser. As such, the subsequent supply of the beneficial interest to the purchaser was not made under that arrangement.

Therefore, we must determine whether the supply of the beneficial interest was in itself a GST-free supply of a going concern.

You supplied your beneficial interest after negotiations with the purchaser; however you did not have a written contract under which you and the purchaser have agreed that the supply was a sale of a going concern. Thus, paragraph 38-325(1)(c) of the GST Act was not satisfied.

For the purpose of this ruling, it is no longer necessary to determine whether the supply of your beneficial interest was a supply of a going concern under subsection 38-325(2) of the GST Act. Even if it was a supply of a going concern, the supply of your beneficial interest in the property was not GST-free under subsection 38-325(1) of the GST Act.

Taxable supply

According to section 9-5 of the GST Act, you make a taxable if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· the supply is connected with Australia; and

· 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.

The supply of your beneficial interest in the portion of the property satisfied the requirements in paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. That is, you made the supply for consideration; the supply was connected with Australia; and you are registered for GST.

For the purpose of paragraph 9-5(b) of the GST Act, 'carrying on enterprise' is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise.

The sale of the entire property was treated as a sale of a going concern under which you supplied all of things necessary for the continued operation of your property development enterprise by the purchaser. Although the supply of your beneficial interest in the portion of the property was excluded from the sale of the entire property, we consider that you held the beneficial interest in the portion of the property in connection with your property development enterprise.

Therefore, the supply of your beneficial interest in the portion of the property was made in the course of carrying on your property development enterprise. Paragraph 9-5(b) of the GST Act is also satisfied. As such the supply was a taxable supply.

There are no other provisions in the GST Act under which the supply of your beneficial interest in the portion of the property would be GST-free or input taxed.