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Ruling

Subject: GST and acquisition of a going concern

Question

Will your acquisition of a residential unit, used in a leasing enterprise in a resort, be an acquisition of a going concern?

Answer

Yes, your acquisition of a residential unit, used in a leasing enterprise in a resort, will be an acquisition of a going concern.

Relevant facts and circumstances

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

You are negotiating to purchase a residential unit in a resort.

The resort provides holiday accommodation and comprises of a tennis court, fitness centre, library, BBQ facilities, swimming pools and other facilities usually provided in a seaside holiday resort.

The furniture and furnishings in the unit are included in the sale.

The enterprise to be purchased is part of a larger enterprise owned by the vendor.

You will not be involved in the booking / reservation system. There is an on-site manager that conducts the enterprise on behalf of the owner and accepts and administers all bookings.

The income form the resort is not pooled. Each unit owner receives the income from their individual unit. Each individual owner enters into a management agreement with the on-site manager of the resort and pays a commission to the resort manager for their services.

The resort is actively advertised all year round via the internet, flight centres, holiday accommodation magazines and holiday booking centres.

The resort has never been the subject of a long term lease to a managing agent or otherwise.

The vendor claims that the supply of the unit will not be a supply of a going concern.

You consider that the supply will be a supply of a going concern for the following reasons:

· the sale will be for valuable consideration;

· You are registered for GST;

· the vendor will carry on the enterprise until the date of sale;

· You will carry on the enterprise after the sale;

· the vendor will include in the sale all the things necessary for the continued operation of the enterprise such as furniture and furnishings and access to the reservation / booking system. The onsite facilities such as tennis court etc are all part of the common property of the resort and owned by the owners' corporation; and

· the vendor and the purchaser will agree in writing that the sale is a supply of a going concern if this private ruling affirms your submission / opinion.

Relevant legislative provisions

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

Reasons for decision

You informed that you are negotiating the purchase of a residential unit in a resort.

You also informed that the vendor claims that the supply of the unit will not be a supply of a going concern.

However, for the following reasons you consider that the supply will be a supply of a going concern:

· the sale will be for valuable consideration;

· You are registered for GST;

· the vendor will carry on the enterprise until the date of sale;

· You will carry on the enterprise after the sale;

· the vendor will include in the sale all the things necessary for continued operation of the enterprise such as furniture and furnishings and access to the reservation / booking system. The onsite facilities such as tennis court etc are all part of the common property of the resort and owned by the owners' corporation; and

· the vendor and the purchaser will agree in writing that the sale is a supply of a going concern if this private ruling affirms your submission / opinion.

Going concern

Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) a 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.

According to the facts provided:

· the supply of the unit to you will be for considerable consideration;

· you are registered for GST; and

· you and the purchaser will agree in writing that the sale is a supply of a going concern if this private ruling affirms your submission / opinion.

Therefore, we agree that where the facts as provided are correct at the time of sale, then all the requirements under subsection 38-325(1) of the GST Act will be satisfied.

However, for a supply to be a supply of a going concern, subsection 38-325(2) of the GST Act also needs to be satisfied.

The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act as 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 a part of a larger enterprise carried on by the supplier).

In this case it is understood that:

· the unit is used by the vendor as part of their leasing enterprise;

· there is an on-site manager that conducts the enterprise on behalf of the owner and accepts and administers all bookings in return for a commission;

· the vendor will carry on the enterprise until the date of sale;

· You will carry on the enterprise after the sale;

· the vendor will include all of the things necessary for the continued operation of the enterprise such as furniture and furnishings and access to the reservation / booking system.

We agree that where all the things necessary for the continued operation of the leasing enterprise are passed to you and where you are able to continue the identified leasing enterprise at the day of the supply, the acquisition of the unit by you will be a GST-free acquisition of a going concern.