Edited version of your written advice

Authorisation Number: 1012908203101

Date of advice: 11 November 2015

Ruling

Subject: GST and the supply of real property

Question

Will you acquire the property as a GST-free supply of a going concern?

Answer

No

Relevant facts and circumstances

You are registered for GST.

You are purchasing land from the vendor.

The land is part of the business land.

The vendor is the current owner of the business land. The business land is made up of part freehold land (which you will acquire) and part Crown Land.

The vendor has sublet the business land to a private operator, who has indicated to the vendor that they are looking to sell their business assets and retire.

You and an associate will acquire the land and business of the business under the following ownership structure:

• Purchaser of the Freehold Land component - you.

• Lessee of the Crown Lease - associate Entity A

• Purchaser of the Business Assets, including goodwill, from the private operator - associate entity A

Draft Contract of Sale

The GST clause of the draft contract does not specify that the sale is the sale of a going concern. However, the vendor is willing to insert such a clause if the land can be supplied as a going concern.

At page X, the draft contract specifies that at settlement the purchaser is entitled to vacant possession of the property.

Relevant legislative provisions

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

Reasons for decision

Note: 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 legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

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, (subject to the relevant going concern being included in the contract of sale) your acquisition of the land can satisfy the requirements of subsection 38-325(1). Therefore, where your acquisition meets the requirements of subsection 38-325(2), it will be acquired GST-free as a going concern.

Under subsection 38-325(2), 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).

Supply under an arrangement

Paragraphs 19 of 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) explains that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement.

You will acquire from the vendor the business land, which is leased to the current business operator.

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

Paragraph 38-325(2)(a) requires that the vendor supplies all things necessary for the identified enterprise.

The enterprise

As explained in paragraph 29 of GSTR 2002/5, subsection 38-325(2) 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.

In this instance, the vendor is carrying on an enterprise of leasing (to the business operator). This is the identified enterprise for the purposes of paragraph 38-325(2) (a).

All things necessary

Paragraphs 74 and 75 of GSTR 2002/5 state:

74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.

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.

For you to acquire the land as a going concern, you must acquire the land with the lease in place. However, the draft contract of sale states that at settlement you are entitled to vacant possession of the land.

Therefore, you will not acquire from the vendor all of the things that are necessary for the continued operation of its leasing enterprise. Accordingly, you will not acquire the land as a GST-free supply of a going concern.