Edited version of your written advice

Authorisation Number: 1012940030102

Date of advice: 21 January 2016

Ruling

Subject: Goods and services tax (GST) and supplies of going concerns

Question

Is GST payable on the supplies you made to X, that is:

• the supplies you made under the Agreement to Lease for the premises X, which include:

• the lease of the X premises

• the right to use the premises to conduct a X business

• plant and equipment, fixtures and fittings for use in the X business, and

• your grant of a licence to X to commence the X business from those premises prior to settlement of the lease rights?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are primarily a property development entity, which owns a number of commercial buildings and earns rental income.

You also own and operate a X business at locality Y.

You purchased a new property at locality X and have constructed a X on the land with the intention of selling the rights to operate the X.

You did not operate a X business from property X at any time.

You entered into an Agreement to Lease with X in respect of the X in locality X. Under the lease agreement, you agreed to make the following supplies to X

• the lease of the X premises

• the right to use the premises to conduct a X business (a Schedule to the Agreement to Lease states that the permitted use of the premises is a X), and

• plant and equipment, fixtures and fittings for use in the X business.

A clause of the Agreement to Lease states:

From the occupation date until (but excluding) the date of commencement of the Lease, the Lessee shall have a temporary licence to use the Demised Premises for preparation of the Demised Premises for operation of the Lessee's business.

Due to construction delays, the settlement date of the lease contract was postponed, however as some of the X was completed and operational, a temporary licence was entered into for X to commence operating their X business prior to settlement of the lease rights using the completed parts of the property.

Settlement was completed on (date).

The agreed contract price was (amount) plus GST (per a Schedule to the Agreement to Lease).

The supply of the things under the arrangement in question was treated as a supply of a going concern and GST was not paid on settlement.

The GST Deed, which was signed by both parties, states that the supply under the Agreement by the Lessor to the Lessee is the supply of a going concern.

X is registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

Reasons for decision

Summary

The relevant enterprise for the purposes of the going concern provisions is the X business carried on from the premises concerned.

As the supplier of the things that are the subject of this ruling (you) did not operate a X business from the premises concerned prior to settlement, you do not meet the requirements of paragraph 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, you did not supply a going concern. Hence, you did not make a GST-free supply under section 38-325 of the GST Act.

GST is payable on the supplies you made to X as all of the requirements of section 9-5 of the GST Act are met.

Detailed reasoning

GST is payable on any taxable supply.

You make a taxable supply if you meet the requirements of section 9-5 of the A New GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is *connected with the indirect tax zone; 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.

(*Denotes a term defined in section 195-1 of the GST Act)

The indirect tax zone is Australia.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

• you have made supplies for consideration

• you made these supplies in the course or furtherance of your property development and leasing enterprise

• the property is located in Australia, and

• you are registered for GST.

There are no provisions in the GST Act under which your supplies could be input taxed.

Therefore, what remains to be determined is whether your supplies are GST-free.

A supply of a going concern may be GST-free under subsection 38-325(1) of the GST Act.

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

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 defines supply of a going concern. It 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).

Paragraph 75 of Goods and Services Tax Ruling GSTR 2002/5 sets out the two elements that are essential for the continued operation of an enterprise. 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.

In accordance with paragraphs 29 and 141 of GSTR 2002/5, the supplier of the things concerned must have carried on and operated the relevant enterprise prior to supply of those things.

Paragraph 29 of GSTR 2002/5 states;

29. 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. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

Paragraph 141 of GSTR 2002/5 states:

141. 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.

The supplier in your case is you.

You have not supplied a leasing enterprise as you have not transferred your rights as lessor to a new landlord. You are leasing the property to X.

The relevant enterprise in this case is the X enterprise that the lessee is carrying on from premises X.

You have supplied premises by way of lease to X; the right to use the premises to conduct a X business and certain other things.

You did not operate an X business from premises X.

The use of the premises by X in their own X enterprise, prior to the time of supply, is not relevant.

Your operation of an X business at another location is not relevant.

As you did not operate an X business from premises X, you have not supplied a going concern to the lessee. Therefore, you have not made a GST-free supply under section 38-325 of the GST Act.

There are no other provisions of the GST Act under which the supplies you made to X are GST-free.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on these supplies.