Edited version of your written advice

Authorisation Number: 1012728647296

Ruling

Subject: GST and supply of a going concern

Question

Will the proposed supply of the completed serviced apartments qualify for GST free treatment as a supply of a going concern?

Answer

Yes, where the purchasers are registered for GST. The supplies of the completed serviced apartments to entities who are not registered for GST will not be GST free.

Relevant facts and circumstances

Entity A (you) is registered for GST and you acquired a leasehold interest in Property.

You are currently developing the Property into a combination of individual serviced apartments and mixed use retail, a tavern and restaurants.

Upon completion of the development:

• the lease will be surrendered and replaced with individual strata titled leases (commercial and residential).

• you will enter into sub lease arrangements whereby the sublessee will be responsible for managing the individual units and supplying the units to the general public.

• you will market your leasehold interest in the units for sale to third party investors.

• you expect that some of the investors will be registered for GST and some will not.

You provided a sample contract in respect of the sale of the leasehold interest in the Units to GST registered entities ('Contract'). This Contract is prepared on the basis that:

• the parties to the Contract have agreed in writing that the sale is supply of a going concern

• the relevant purchasers (i.e. the individual investors) will warrant that they will be registered or required to be registered for GST at the time of completing the Contract.

• the leasing activities and enterprise will be carried on by you 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

In this ruling, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

Subsection 38-325(1) of the GST Act provides that the supply of a going concern is GST-free if

a) the supply is for consideration

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

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

Based on the presented facts, the requirements of subsection 38-325(1) will be satisfied. Therefore, where the supply meets the requirements of subsection 38-325(2) of the GST Act 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:

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 the larger enterprise carried on by the supplier).

Identified enterprise

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a supply of a going concern GST-free? (GSTR 2002/5) provides guidance on the requirements to be met for a supply to be a GST free supply of a going concern.

Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2).

On the basis that at a future point in time you will carry on an enterprise of leasing the strata titled units (the identified enterprise) the requirements under paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act must be satisfied in relation to this enterprise for there to be a sale of a going concern.

Supply of all things necessary for the continued operation of an enterprise

Paragraph 72 of GSTR 2002/5 explains that the things that are necessary for the continued operation of the enterprise will depend on the nature of the identified enterprise being carried on.

Relevantly, paragraphs 150 and 151 of GSTR 2002/5 discuss the circumstances under which a leasing enterprise is considered to be operating:

150. A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating.

151. The activity of leasing a building which has previously been leased to a tenant remains an enterprise of leasing for the purposes of section 9-20 of the GST Act during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, where a building has not previously been leased to a tenant, but is being actively marketed, an enterprise of leasing is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement for lease or occupies the building.

You will supply to the purchaser, the leasehold interest in the property, the individual lease and occupancies and assignments of any benefits under bonds/leases. Therefore you will supply all things necessary to the purchaser for the continued operation of the leasing enterprise.

Supplier carries on enterprise until day of supply

You will carry on the leasing enterprise until the day of supply.

Accordingly, you will satisfy paragraphs 38-325(2)(a) and (b).

As all the requirements for section 38-325 of the GST Act will be satisfied, the supplies of the units to GST registered entities will be GST-free supplies of going concerns.