Edited version of your written advice

Authorisation Number: 1012893109643

Date of advice: 13 October 2015

Ruling

Subject: Supply of property as a going concern

Question

Will the supply of the property by Entity A to Entity B as trustee for Entity B Trust, be a supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

On xxyyyy, Entity A [the Vendor] entered into a Contract of Sale with Entity B as trustee for Entity B Trust [the Purchaser] for the sale of the property.

The Vendor and the Purchaser are both registered for GST.

The sale price is $ (exclusive of GST).

At settlement, the Vendor is required to assign to the applicant all rights, title and interest in all plans prepared in relation to the development consent and the benefit of the Vendor's development consent.

The Purchaser intends to continue with the Vendor's intended development of the site and on completion sell the improved site.

The property currently contains a vacant commercial building.

The following documentation has been provided in support of your ruling request:

• Contract for the sale of land - 2005 edition between Entity A and Entity B

The following clauses are relevant for the purposes of this ruling:

Clause XX the parties agree the supply of the property is a supply of going concern;

Special Conditions to Contract For Sale

Clause XX The parties hereto agree that the sale is GST-free because the sale is the supply of a going concern

Clause XX Whilst the parties agree that the sale is GST-free because the sale is a going concern the Purchaser will (for the avoidance of doubt) submit an application for a ruling by the Australian Taxation office ("the application") and Completion is subject to and conditional upon the ruling being delivered to the Purchaser and served on the Vendor with two (2) business days of receipt by the Purchaser of the final ruling determination.

…

Clause XX Development Consent

Clause XX The Vendor shall on completion provide to the Purchaser all supporting documents and plans and original Development Consent for Determination of Development Application ("the DA") issued by Council on xxyyyy (a copy of which is attached to this contract).

Clause XX As and from completion the Vendor shall assign to the Purchaser all rights, title and interest in the copyright and intellectual property of all plans prepared for the D.A. including but not limited to survey plans, architectural plans, engineering plans, draft strata plan, building plans, stormwater drainage plans, and landscape plans.

Clause XX Development

Clause XX Annexed to the contract are copies of:

• Modification of Development Application ('consent')

Clause XX the Purchaser acknowledges having made enquiries in regard to the consent and other documentation and being satisfied in respect to the conditions referred to in the consent.

Clause XX The Purchaser acknowledges that the Vendor is under no obligation to comply with the conditions of the consent which are the responsibility of the Purchaser as and from completion.

Clause XX On completion, the Vendor must hand to the Purchaser copies of all plans, reports and other documents relating to the consent and assigns the benefit of the consent to the Purchaser.

Clause XX As and from completion, the Purchaser indemnifies the Vendor against all claims, demands, actions, proceedings or other liability arising under the consent and agrees to assume liability for all ongoing costs, fees, Council bonds and contributions and other expenses relating to the consent.

Clause XX Completion of this contract shall be subject to and conditional upon the Vendor lending to the Purchaser the sum of $ to assist the Purchaser to complete the purchase of the property ("the Loan") and on the terms and conditions of a mortgage over the Property generally in a the form annexed and marked "A" and a General Security Agreement over the assets of the Purchaser company to be prepared by the Vendor's solicitors prior to completion.

In an e-mail dated xxyyyy, a Director of Entity A (the Vendor) supplied the following additional information:

1. The Enterprise activities of the Vendor include property investment, rental and development.

2. In relation to the enterprise activities which were carried on by the Vendor up until the date of supply of the property, you state that:

The supplier up to the date of exchange, over a period of around two years, dealt with council to obtain the necessary detail to submit a suitable DA. The Vendor worked with neighbours to ensure community awareness, dealt with numerous consultants and contractors to deliver information required by council, worked with experienced builders to investigate building proposals to develop the site, met with child care workers and providers to evaluate suitable alternatives, met with agents to examine and assess commercial alternatives and negotiated with prospects to determine a suitable solution in respect of development. Since the exchange of the contract in xxyyyy, no further follow up activity has been undertaken.

Since xxyyyy, the Vendor has been available to assist the purchaser and its project consultant if and when required.

3. The following documentation/plans/approvals/contracts will be supplied to the purchaser of the property.

• All documents required under the contract of sale - Architects plans and drawings, all consultant's reports required under the DA Application, survey, copy of final DA approved, as provided in the contract.

The property is a freestanding building and was purchased in the late yyyy. It was a rental property prior to this application. The property has not been permanently occupied over xx months.

4. You have provided a copy of the Development Consent:

5. The Vendor and Purchaser are not related parties.

In a further e-mail dated xxyyyy, the Director of Entity A provided the following additional information:

1. Timeline of activities conducted by Entity A

Various works leading to architect plans. Dealing with various consultants, Town Planner, traffic, council, air and neighbour issues.

2. The development was delayed as the approved DA was not suitable for the proposed purpose. Further amendments to the DA were required.

3. You have further clarified that the documents / contracts provided to the Purchaser included the Development Approval, together with all associated documents required for approval including work undertaken by the Architects, Traffic Planning, Surveyors, Town Planners, Consulting Engineers etc

4. Entity A is not undertaking any similar projects currently.

In an e-mail dated xxyyyy, your representative provided the following submission:

1. Section 38-325(2)(b) of the GST Act will be complied with as, in the case of the sale of a redevelopment site, all the Vendor has to do to carry on the enterprise until settlement is maintain the DA and the property. That may be a minor activity but enough to constitute an enterprise being carried on. The Vendor's business will not cease before 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 reasoning, please note:

• All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

• All terms marked by an *asterisk are defined terms in the GST Act.

Subsection 38-325(2) defines the supply of a going concern for GST purposes as 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.

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 operation of section 38-325 of the GST Act. The principles outlined in GSTR 2002/5 have been applied in this case.

The conditions in paragraphs 38-325(2)(a) and (b) must be satisfied in relation to an 'identified enterprise'.

Enterprise

The term 'enterprise' is defined in section 9-20 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. This is the enterprise for which the supplier must supply all things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply.

The property is a freestanding building which was previously rented out. However, the property has not been permanently occupied over the past XX months.

During this time and up until the exchange of contracts, Entity A (the Vendor) has performed the following activities in relation to the property:

• Liased with Council to obtain the necessary detail to submit a suitable Development Approval.

• Worked with neighbours to ensure community awareness

• Dealt with numerous consultants and contractors to deliver information required by council

• Worked with experienced builders to investigate building proposals to develop the site

• Met with child care workers and providers to evaluate suitable alternatives

• Met with agents to examine and assess commercial alternatives and negotiated with prospects to determine a suitable solution in respect of the development.

Since the exchange of the contract in xxyyyy, no further follow up activity has been undertaken although the Vendor has made themselves available to the Purchaser to assist with the continuation of the project.

Based on the information provided to us, the Vendor is conducting an enterprise of property redevelopment in relation to the property.

Things that the supplier can supply

Paragraph 38-325(2)(a) requires that the supplier supplies to the recipient all of the things that are necessary for the continued operation of the identified enterprise. The recipient must be put in a position on the day of the supply where it can, if it so chooses, continue to operate that enterprise.

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.

In this case, the Vendor will be supplying the Property. In addition, the Vendor is supplying the Development Approval together with the Notice of Determination regarding modification of the Development Consent. Other documentation to be provided to the Purchaser includes architect plans and drawings, consultant reports required under the Development Approval Application and surveys. This is detailed in Clause XX of the Contract of Sale which states:

XX The vendor shall on completion provide to the purchaser all supporting documents and plans and original Development Consent for Determination of Development Application ("the D.A.") issued by Council on xxyyyy (a copy of which is attached to this contract)

XX As and from completion, the vendor shall assign to the purchaser all rights, title and interest in the copyright and intellectual property of all plans prepared for the D.A. including but not limited to survey plans, architectural plans, engineering plans, draft strata plan, building plans, stormwater drainage plans and landscape plans.

Based on the information provided, we consider that all things necessary have been provided to the Purchaser for the purpose of undertaking the redevelopment of the Property.

Supplier carries on the enterprise until the day of the supply

The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is 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.

A supply will not be a 'supply of a going concern' where, on the day of the supply, the activity carried on by the enterprise has ceased.

In this case, the Vendor has undertaken numerous activities relating to the development of the property between xxyyyy and xxyyyy, the day on which the Contract of Sale was signed. Settlement of the sale will take place on receipt of a Private Binding Ruling from the Australian Taxation Office (ATO) regarding the GST implications of the sale, pursuant to Clause XX of the Contract of Sale. Pending the receipt of the Ruling from the ATO, the Vendor has made themselves available to the Purchaser and its Project Consultant to progress the development and has maintained the subject property. In the circumstances, we consider that these actions by the Vendor, in continuing the operation of its enterprise, are sufficient, in the context of this project, for paragraph 38-325(2)(b) to be satisfied.

As such, the sale of the Property is considered to be a going concern for the purposes of the GST legislation. The sale of a going concern will be GST-free under subsection 38-325(1) of the GST Act where all of the following criteria are met:

• the supply is for consideration;

• the recipient is registered for GST ; and

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

In this case, the supply is for consideration, the Purchaser is registered for GST and both the Vendor and the Purchaser have agreed in writing that the supply is of a going concern. Therefore, the supply of the Property by the Vendor to the Purchaser will be GST-free.