Edited version of private advice

Authorisation Number: 1012654020116

Ruling

Subject: GST and supply of a going concern

Question

Is the sale of the property a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The sale of the property will be a GST-free supply of a going concern provided the sale satisfies all of the requirements under section 38-325 of the GST Act. Please refer to the reasons for decision.

Relevant facts and circumstances

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

• You have acquired a commercial property that was leased and you will continue to lease the property.

• The contract states that the price includes GST or going concern.

• The contract also requires the purchaser to obtain a private ruling from the Commissioner of Taxation to confirm whether the contract should be treated as a going concern.

• You have confirmed that a commercial leasing business or an enterprise has been purchased.

• The property is currently leased and the lease arrangement will continue until the day of supply of the supply.

• You have confirmed that everything required for the continued operation of the enterprise is being supplied by the vendor.

• The contract neither include any details of the leasing arrangement between the vendor and the lessee nor did you provide a copy of the leasing agreement to confirm that the leasing enterprise is supplied to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20 and

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

Reasons for decision

A supply will be GST-free supply of a going concern where the requirements of section 38-325 of the GST Act are met.

Goods and Services Tax Ruling 'Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) discusses a 'supply of a going concern' for the purposes of section 38-325 of the GST Act and when the 'supply of a going concern' is GST-free.

Subsection 38-325(1) of the GST Act states:

(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

Subsection 38-325(2) of the GST Act states:

(1) A supply of a going concern is a supply under an arrangement under which:

(a) the supplier supplies to the recipient all 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).

Supply for consideration

The property will be purchased for $XXX and we consider that the supply will be made for consideration.

Recipient registered for GST

You, as a purchaser are registered for GST.

Agreed in writing

The term 'agreed in writing' means that the supplier and the recipient have made mutual declaration in such form that clearly evidences that they agree that the supply is a 'supply of a going concern' (refer paragraph 181 of GSTR 2002/5)

The contract of sale stipulates that whether the sale of the property should be treated as a going concern depends on the purchaser obtaining a private ruling from the Commissioner of Taxation.

We consider that you and the purchaser have agreed in writing that the supply of the property will be the supply of a going concern for the purpose of paragraph 38-325(1)(c) of the GST Act.

Supply under an arrangement

The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under paragraph 38-325(1)(c) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply.

However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. (refer paragraphs 19 and 20 of GSTR 2002/5)

Although the contract of sale provides the details and/or the terms and conditions of the supply of the property, it does not specify the details or the terms and conditions of the leasing enterprise which will be provided under a single arrangement.

You have not provided us with any other written agreement that relates to the supply of leasing enterprise. However, we consider that provided you and the vendor enter into a written agreement in relation to the supply of leasing enterprise prior to the supply of the property, the requirement of supply under an arrangement would be satisfied.

Supplier supplies all things necessary for the continued operation of an enterprise.

Subsection 38-325 (2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the identified enterprise). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

The term 'enterprise' is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.

Where an enterprise consists solely of the leasing of property, paragraph 96 of the GSTR 2002/5 states that the things that are necessary for the continued operation of the enterprise, include the supply of the property and the covenants of the lease.

In this case, the identified enterprise carried on by the vendor is the leasing of the property purchased by you. The enterprise carried on by the vendor is continuous and uninterrupted. This is the identified enterprise and is capable of being treated as a going concern. The supply is a supply of a going concern when all of the things necessary to continue the operation of the leasing enterprise as an independent enterprise, are supplied (refer paragraph 31 of GSTR 2002/5)

Where the enterprise is identified, a supplier needs to supply all of the things that are necessary for the continued operation of that enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. (refer paragraph 30 of GSTR 2002/5)

In this case, the property purchased by you has been leased. According to the facts provided this property will continue to be leased by you.

Your accountant also confirmed that all the things that are necessary for the continued operation of the leasing enterprise will be provided by the vendor. Based on the facts provided, it is our view that all the things necessary for the continued operation of the leasing enterprise will be supplied under the arrangement.

Supplier carries on the enterprise until the day of the supply.

Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be carried on, by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership. (refer paragraph 141 of GSTR 2002/5)

The day of supply occurs when the vendor has done everything to satisfy their obligations under the contract and/or arrangement and you as a purchaser have assumed effective control and possession of the property.

In this case the day of the supply would be the date of settlement. It is our view that the vendor will be carrying on the leasing enterprise until the day of supply to you.

Conclusion

Considering all the facts provided, it is agreed that the supply of the leasing enterprise by the vendor will be a GST-free supply of a going concern provided the supply satisfies all of the requirements under section 38-325 of the GST Act, as explained above.