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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1012651031028

Ruling

Subject: Sale of real property

Question 1

Will your supply of the property and operations be a GST-free supply of a going concern, pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

Yes

Question 2

Will your supply of the property be eligible for the margin scheme, pursuant to Division 75 of the GST Act?

Advice/Answers

Yes

Relevant facts and circumstances

You are registered for GST.

Post 1 July 2000, you acquired a property.

You are operating an enterprise from the property.

You are considering selling the property as a going concern.

Under the going concern option, the contract for sale will specify:

    • the consideration to be paid,

    • that the recipient is to be registered for GST

    • the supply is of a going concern.

You will supply all things necessary for the continued operation of the enterprise.

You will continue to operate the enterprise until the day of the supply.

If the property is not sold as a going concern, you will consider applying the margin scheme.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 75-5

Reasons for decision

In this ruling,

    • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

    • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Question 1 - going concern

Under section 9-5, an entity makes a taxable supply if:

    • it makes a supply for consideration; and

    • the supply is in the course or furtherance of an enterprise that it carries on; and

    • the supply is connected with Australia; and

    • the entity is 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.

On the facts provided, your supply of the property will be a taxable supply unless it is GST-free or input taxed. In your circumstances, there is no provision under the GST Act in which the supply will be input taxed.

Section 38-325 deals with the supply of a going concern. Subsection 38-325(1) provides that the supply of a going concern is GST-free if:

    • the supply is for consideration

    • the recipient is registered or required to be registered for GST, and

    • the supplier and the recipient have agreed in writing that the supply is of a going concern.

On the facts supplied, your supply will satisfy the requirements of subsection 38-325(1). Therefore, where the supply meets the requirements of subsection 38-325(2) it will be a GST-free supply of a going concern.

Subsection 38-325(2) provides that 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 a part of the larger enterprise carried on by the supplier).

On the facts supplied, your supply will satisfy the requirements of subsection 38-325(2).

As you will satisfy the requirements of subsections 38-325(1) and (2) of the GST Act, your supply of the property will be a supply of a going concern for the purposes of section 38-325 of the GST Act.

Question 2 - margin scheme

Subsection 75-5(1) provides that the margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by:

    a. Selling a freehold interest in land; or

    b. Selling a stratum unit; or

    c. Granting or selling a long-term lease;

    if you and the recipient of the supply have agreed in writing that the margin scheme is to apply.

However, subsection 75-5(2) provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long term lease through a supply that was ineligible for the margin scheme.

If the property is eligible for the margin scheme, the GST on any sale will be calculated as 1/11th of the relevant margin, i.e. 1/11th of the amount by which the consideration for the supply exceeds the valuation of the interest, unit or lease.

If you do not supply the property as a going concern, you will consider applying the margin scheme.

Paragraphs 75-5(3) (b) to (g) lists the circumstances in which you acquire the entire freehold interest, stratum unit or long term lease through a supply that was ineligible for the margin scheme.

None of the circumstances in paragraphs 75-5(3)(b) to (g) will apply to your supply of the property. Therefore, your supply is not ineligible for the margin scheme for the purposes of Division 75 of the GST Act.


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