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Ruling

Subject: GST and the supply of a GST-free going concern

Question 1

Is the supply of land and other assets the supply of a going concern within 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 (Vendor) is the owner of the real property (Property).

The Vendor is carrying out a development project on the Property (Project).

The Project is a mixed use development comprising a commercial and industrial business park. The Project comprises the subdivision into separate commercial or industrial lots to be constructed and released.

The documents provided for the development with the GST private ruing application are as follows:

· Part of the Development Application lodged with Council including Statement of Environmental Effects;

· Draft Subdivision Plans showing the proposed subdivision and creation of new lots;

· The Landscape and Subdivision Master plan; and

· The General Arrangement and Staging Plan.

The Vendor has agreed to sell the land comprising the Project and other relevant development assets to Entity B (Purchaser).

The sale will occur under a contract for sale of land entered into early 2012 (Contract, copy provided). The Vendor and Purchaser have agreed in writing that the sale will be the sale of a going concern, that the Vendor will supply all that is necessary for the continued operation of the enterprise, that the Vendor and Purchaser are each registered for GST and that the Vendor will continue the operation of the enterprise to the day of completion under clause XXX of the Contract. Furthermore, the completion date is planned for the XX 2012.

Under an option deed (copy provided) the Purchaser is the party physically responsible for preparation and lodgement of the development application in respect of the Project. The Purchaser will lodge the development application as agent for the Vendor since at the time of lodgement of the application, the Vendor will be the registered owner of the Property (a letter from the Vendor to the Purchaser dated XX 2012 to this effect has been provided).

From 2009, when the Vendors purchased the Property, to the date the Contract was entered into substantial works have been undertaken by the Vendor and its contractors. The following are works that have been completed on the Property:

· Development application granted for the design and development of a road ,

· Development application granted for a sewer drainage,

· Road works, earthworks and landscaping,

· Construction of onsite detention basin and sediment pond to treat stormwater until works are complete in respect of the proposed subdivision, and

· Establishment of a riparian corridor.

In addition, activities being carried on in relation to the Project include the following activities of the Vendor:

· Ongoing landscape maintenance of the Project site and ongoing maintenance of the detention basin for water quality,

· Installation and commissioning of traffic lights,

· Negotiation of a contract for approximately uncontaminated fill to be delivered and compacted to satisfy proposed development application levels, and

· Development of a concept design for sale and lease of the proposed bulk goods development within the site.

Any contracts made before completion will be made by the Vendor and novated to the Purchaser at or after completion.

The Vendor and Purchaser are both 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

GST is a broad based indirect tax payable on taxable supplies. A supply will be taxable where it satisfies section 9-5 of the GST Act.

This section provides you make a taxable supply if you make the 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 that it is GST-free or input taxed.

Hence, the Vendor will make a taxable supply on completion, being the settlement date, as the supply is for consideration, the supply is made in course of an enterprise the Vendor carries on, the supply is connected to Australia as it is done in Australia and the Vendor is registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There are no provisions that would result in the supply being input taxed but consideration needs to be given whether it is GST-free pursuant to section 38-325 of the GST Act.

Section 38-325 of the GST Act provides that a supply of a going concern is GST-free where there is a supply for consideration, the recipient is registered for GST, the supplier and the recipient have agreed in writing that the supply is of a going concern, the supplier provides or will provide to the recipient all of the things that are necessary for the continued operation of the enterprise, and the supplier carries on the enterprise until the day of the supply.

In this circumstance, the Vendor supplies a development enterprise for consideration, the Purchaser is registered for GST, the supplier and the recipient have agreed in writing that the supply is of a going concern, the supplier will provide to the recipient all of the things that are necessary for the continued operation of the development enterprise and the Vendor will carry on the development enterprise until the day of supply, being settlement/completion. Therefore, the supply satisfies section 38-325 of the GST Act and is a GST-free supply of a going concern to the Purchaser.