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Ruling

Subject: Sale of industrial premises

Question

Is the acquisition of the tenanted industrial properties an acquisition of a GST-free supply of a going concern?

Answer

Yes, the acquisition of the tenanted industrial properties is an acquisition of a GST-free supply of a going concern, where all of the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied on the day of the supply (that is, on the day of settlement).

Relevant facts and circumstances

The Vendor owns two industrial properties.

The Vendor is carrying on an enterprise of leasing commercial property and is registered for the goods and services tax (GST).

The Vendor has entered into a contract of sale to sell the two industrial properties, identified as Lot 1 and Lot 2.

The industrial properties are currently tenanted under leases.

The industrial properties are being sold to two purchasers, hereinafter referred to as Purchaser No. 1 and Purchaser No. 2.

Purchaser No. 2 constitutes two entities who are buying the property as tenants in common.

Purchaser No 1 is purchasing tenanted Lot 1.

The two Purchasers are registered for the GST in their individual capacities.

The two lots are sold under a single contract of sale.

The Vendor will, at the transfer of ownership, provide the Purchasers the real property and all of the other tangible and intangible assets as may be required for the Purchasers to carry on the leasing enterprise if they so wish.

The Vendor will assign all of the current the leases to the Purchasers No. 1 and No. 2 at the transfer of the ownership.

The Vendor and the Purchasers have agreed in writing (or will agree in writing by the settlement date) that the supply of the two leased industrial premises is the supply of going concerns.

The Vendor will continue the enterprise of leasing in respect of the two industrial premises until the day of the supply.

Relevant legislative provisions

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

Reasons for decision

Section 9-5 of the GST Act states that 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.

(The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act. These terms are explained where they impact on this ruling.)

The supply of the two lots of leased industrial premises is made for consideration and the supply is made in the course or furtherance of the Vendor's enterprise. The supply is connected with Australia and the Vendor is registered for GST. Therefore, paragraphs (a), (b), (c) and (d) of section 9-5 of the GST Act are satisfied.

Furthermore, the supply of the two properties by the Vendor is not an input taxed supply under any provision of the GST Act. We will now consider whether the supply of the two leased industrial properties is GST-free.

Section 38-325 of the GST Act outlines the conditions that must be satisfied for a supply of a going concern to be GST-free. Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) gives the Australian Taxation Office view on the interpretation of this section.

Of particular relevance in this ruling is the fact that the Vendor is supplying the two parts of the leasing enterprise to two purchasers.

Paragraph 131 of GSTR 2002/5 state, with respect to this situation, as follows:

Paragraph 38-325(2)(a) expressly recognises that the supply under the relevant arrangement of all of the things that are necessary for the continued operation of part of a larger enterprise that is capable of separate independent operation may be a 'supply of a going concern'. Therefore, there may be more than one 'supply of a going concern' when separately identifiable parts of a larger enterprise are supplied.

Thus, the following reasoning for our decision is based on our view that two supplies of going concerns are capable of being supplied by the Vendor.

GST-free supply of a going concern

Under subsection 38-325(1) of the GST Act, 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.

The contract of sale outlines that the sale of the two lots of industrial premises is for consideration. The Purchasers are registered for GST and we were advised that the Vendor and the Purchasers have agreed (or will agree by the date of settlement) in writing that the supply is that of a going concern. Therefore, subsection 38-325(1) of the GST Act is (or will be) satisfied.

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

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

The facts of this case state that the Vendor will carry on the leasing enterprise of the two industrial properties until the transfer of the ownership, thus satisfying paragraph 38-325(2)(b). We now need to consider whether 'all things necessary' test in paragraph 38-325(2)(a) will be satisfied on the day of the settlement.

All things necessary

For a sale to be a supply of a going concern it needs to be determined whether the Vendor will supply all the things necessary for the continued operation of the enterprises the Vendor is currently carrying on.

In respect of the 'all things necessary' test paragraph 41 of GSTR 2002/5 states:

· This term emphasises that the elements of paragraph 38-325(2)(a) must be satisfied from the perspective of the supplier.…

· Under the contracts of sale and the disclosure provided along with the application for this private ruling, it is evident that all of the things that are necessary for the continued operation of the leasing enterprise are being supplied to the Purchasers on the day of the settlement. These are, in the main, the two lots of industrial premises and the assignment of the current leases.

Based on these facts, it is our view that the Vendor is supplying all the things that are necessary for the continued operation of the leasing enterprise and, therefore, satisfy paragraph 38-325(2)(a) of the GST Act on the date of supply (that is, settlement).

Therefore, the supply of the two industrial properties and the assignment of the leases meet the statutory definition of a 'supply of a going concern' under subsection 38-325(2) of the GST Act.

As both subsections 38-325(1) and (2) of the GST Act are (or will be) satisfied on the day of the supply, the supply of the leased industrial premises will be GST-free as a supply of a going concern.

Consequently, the acquisition of the tenanted industrial premises is an acquisition of a GST-free supply of a going concern.