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Ruling
Subject: GST and the supply of a going concern
Question
Is your supply of your leasehold interest over the Property a GST-free supply of a going concern?
Answer
Yes, your supply of your leasehold interest over the Property is a GST-free supply of a going concern.
Relevant facts and circumstances
You are registered for GST.
You entered into a contract to sell your long term leasehold interest over the Property (the Contract).
The recipient was registered by the Australian Securities and Investment Commission (ASIC) after the date of the Contract.
The recipient obtained an Australian business number and became registered for GST after the date of the Contract.
The Property is leased to a tenant.
You carried on your leasing enterprise until completion of the Contract.
The annual turnover of the Lease is in excess of $75,000.
You have provided a copy of the Contract which provides that:
· you and the recipient agree that the supply is the GST-free supply of a going concern
· you must, between the Contract date and completion of the Contract, carry on the enterprise
· the Contract is subject to the Lease and existing tenancies
· all plant, fixtures and fittings are included in the sale.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 23-5
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(2)
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Reasons for decision
Detailed reasoning
All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.
A supply of a going concern is defined in subsection 38-325(2) 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 part of a larger enterprise carried on by the supplier).
You carried on a leasing enterprise through the Lease. You are supplying to the recipient, the leasehold interest, the Lease as well as all plant, fixtures and fittings.
The Contract provides that you must, between the Contract date and completion, carry on the enterprise. Additionally, you have provided that you carried on your enterprise until completion of the Contract.
Therefore, your supply of the leasehold interest, the Lease and the other things necessary for the leasing enterprise, satisfies subsection 38-325(2) as the supply of a going concern.
Subsection 38-325(1) states:
38-325 Supply of a going concern
(1) 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.
(* Asterisked terms are defined in the Dictionary in section 195-1)
You were provided with consideration and both you and the recipient agreed in writing that the supply is of a going concern. However, the recipient was not registered for GST at the date of completion of the Contract and it is therefore left to determine whether the recipient was required to be registered for GST at that time.
Goods and Services Tax Ruling GSTR 2002/5 provides guidance on GST and when a supply of a going concern is GST-free. Paragraph 186 of GSTR 2002/5 states, in part:
186. Paragraph 38-325(1)(b) requires that the recipient is registered or is required to be registered. A recipient that is required to be registered in respect of the enterprise on and from the date of the supply will satisfy the requirement in paragraph 38-325(1)(b)…
Section 23-5 provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.
Section 195-1 provides that carrying on of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.
Based on the information provided, the recipient has obtained the leasehold interest in the Property in the commencement of carrying on a leasing enterprise and the turnover of that leasing enterprise exceeds the registration turnover threshold.
Therefore, at the time of the completion of the Contract, the recipient was required to be registered for GST. As such, the elements of 38-325(1) are satisfied and the supply of the leasehold interest under the Contract is a GST-free supply of a going concern.