| Disclaimer This edited version has been archived due to the length of time since original publication.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 your written advice
Authorisation Number: 1012813523712
Ruling
Subject: Goods and services tax (GST) and the purchase of a property
Question
Are you entitled to an input tax credit on your purchase of property X?
Answer
No, because the sale of the property to you is a GST-free supply of a going concern
Relevant facts and circumstances
You are registered for GST.
You will purchase an industrial complex (property X), which is located in Australia. The date of the sale contract is (date). The vendor is (name). The vendor is registered for GST.
The industrial complex basically comprises a number of warehouses with each individual warehouse also comprising of office and amenity components. The site area is sealed for heavy vehicle access and parking for a number of cars.
You are part of a privately owned family group of entities that carry on a certain business activity in Australia on a large scale and securing these warehouses is necessary to move the manufacturing operations from a location that is not currently suitable for a number of reasons.
A company associated with you, Entity A, is entering into a lease with the vendor, prior to settlement, in respect of some of the warehouses in the complex. The lease between the vendor and Entity A is to be assigned to you on completion of the sale contract.
An existing lease over the other warehouses in the complex is between the vendor and a related company to the vendor, (name). This lease is also to be assigned to you on settlement.
The sale contract states that all inclusions, as listed in the contract between clauses (number) and (number) are to be supplied in addition to the rights and benefits under each of the leases.
The sale contract also states that the supply is to be GST-free as it is a supply of a going concern.
The vendor will continue to lease the premises up until the time of sale.
You will lease the premises as an enterprise.
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 11-5
A New Tax System (Goods and Services Tax) Act 1999 Section 11-15
A New Tax System (Goods and Services Tax) Act 1999 Section 11-20
A New Tax System (Goods and Services Tax) Act 1999 Section 38-325
Reasons for decision
Summary
You are not entitled to an input tax credit on your purchase of the property, because the sale of the property to you is a GST-free supply of a going concern.
Detailed reasoning
You are entitled to input tax credits for your creditable acquisitions.
Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for
the supply; and
(d) you are *registered, or *required to be registered .
(*Denotes a term defined in section 195-1 of the GST Act)
Section 9-5 of the GST Act states:
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made I 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.
A sale of a going concern is GST-free if the requirements of section 38-325 of the GST Act are met.
Subsection 38-325(2) of the GST Act 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).
A supply of a going concern is GST-free under subsection 38-325(1) of the GST Act 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.
Paragraph 75 of Goods and Services Tax Ruling GSTR 2002/5 breaks down the things necessary for the continued operation of an enterprise into two elements. It states:
75. Two elements are essential for the continued operation of an enterprise:
• the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and
• the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.9
In accordance with GSTR 2002/5, the things necessary for the continued operation of the vendor's leasing enterprise are the premises and the transfer of their interests under the existing leases. The vendor will supply these things to you. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met.
The vendor will carry on the enterprise up to the time of sale. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is met.
Hence, the vendor will supply a going concern to you as both of the requirements of subsection 38-325(2) of the GST Act are met.
The requirements of paragraphs 38-325(1)(a) to 38-325(1)(c) of the GST Act are met. That is:
• the sale of the property is for consideration; and
• the recipient is registered for GST; and
• the vendor and recipient have agreed in writing that the sale of the property is the supply of a going concern.
Therefore, the vendor will make a GST-free supply of a going concern to you. Hence, the sale of the property to you will not be subject to GST. Hence, you do not meet the requirement of paragraph 11-5(b) of the GST Act. As you do not meet all of the requirements of section 11-5 of the GST Act, you are not entitled to an input tax credit on your purchase of the property.