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Edited version of your written advice
Authorisation Number: 1012983439212
Date of advice: 11 March 2016
Ruling
Subject: GST and supply of a going concern
Question 1
Will the supply of a commercial property, by Entity A, be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes, provided the Purchaser is registered for GST, and the Vendor and the Purchaser have agreed in writing that the supply is of a going concern.
Relevant facts and circumstances
Entity A are selling a commercial property to a third party with a lease in place. The lease will be entered into with a related company two days prior to the sale. This is being done as part of a corporate restructure.
The sales agreement for the property provides that the property is sold subject to the lease, the benefit of the lease passes to the purchaser on completion, and until completion the Vendor must comply with its obligations under the lease.
The sales agreement provides that the supply of the property with the agreement together with the lease is a supply of a going concern for GST purposes and the Purchaser must be registered for GST when the supply is made.
Also for section 38-325 of the GST Act the sales agreement provides that all of the things that are necessary for the continued operation of the enterprise will be supplied by the Vendor to the Purchaser and the Vendor will carry on the enterprise of leasing up to completion pursuant to the terms and conditions set out in the lease and the sales agreement.
If the purchaser is not registered for GST when the supply is made the going concern clause will not apply to the supply and will not be a supply of a going concern.
Documents provided with application are as follows:
• Contract for the Sale of Land
• Special Conditions to the Contract of Sale, and
• Lease.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 9-5, and
A New Tax System (Goods and Services Tax) Act 1999 38-325.
Reasons for decision
Summary
The supply by the Vendor, of the commercial property with a lease in place, will be a supply of a going concern of a leasing enterprise and GST-free, provided the Purchaser is registered for GST and the Vendor and the Purchaser have agreed in writing that the supply is of a going concern.
Detailed reasoning
You make a taxable supply where you satisfy section 9-5 of the GST Act.
The section provides that you make a taxable supply if:
• you make the supply for consideration, and
• the supply is made in the course or furtherance of an enterprise that you carry on, and
• the supply is connected to the indirect tax zone, and
• you are registered or required to be registered.
However, a supply is not taxable to the extent it is GST-free or input taxed.
In this situation, the supply satisfies the section as there is a supply of a commercial property for consideration, the supply is made in furtherance of the Vendor's enterprise, the supply is connected with the indirect tax zone, and the Vendor is registered for GST.
However, a supply is not taxable to the extent it is GST-free or input taxed.
There are no provisions that result in the supply being input taxed but consideration needs to be given to the application of section 38-325 of the GST Act.
Subsection 38-325(1) of the GST Act provides that a supply of a going concern is GST-free if:
• the supply is for consideration, and
• the recipient is registered or required to be registered, and
• the supplier and the recipient have agreed in writing that the supply is a going concern.
Subsection 38-325(2) of the GST Act provides a supply of 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.
In this situation, the supply of the property that is a leasing enterprise (pursuant to 9-20(c) of the GST Act) is for consideration, the Purchaser is registered for GST, and the Vendor and the Purchaser have agreed in writing that the supply is of a going concern.
Furthermore, a supply of a going concern is a supply under an arrangement where the Vendor supplies to the Purchaser all of the things necessary for the continued operation of the leasing enterprise. In this case the lease is to be in place two days before the supply of the enterprise and will be operated by the Vendor to the day of supply. Hence, all the things necessary for the continued operation of the enterprise till the day of supply will be satisfied with the activities of the leasing enterprise being capable of being continued after the transfer of the new ownership of the commercial property.
Therefore, the supply of the property that is a leasing enterprise will satisfy the requirement of section 38-325 of the GST Act and be GST-free.