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This edited version has been archived due to the length of time since original publication.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: 1013023246261

Date of advice: 25 May 2016

Ruling

Subject: Goods and services tax (GST) and sale of property with leases intact

Question

Will the sale of property X be a GST-free supply of a going concern?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

Entity X holds the legal ownership in property X as a bare trustee on your behalf.

Property X will be sold for a specified price. The name of the vendor as shown on the contract of sale is Entity X. The name of the purchaser as shown on the contract of sale is Entity Z (purchaser).

The settlement date is (date).

Property X comprises a commercial building.

Property X is 100% leased to a number of tenants. Entity X has entered into the lease agreements with tenants in its capacity as bare trustee on your behalf. The contract of sale provides that sale is subject to the existing tenancies. The expiry dates of these leases fall after the settlement date of the sale of the property.

Entity X and the purchaser have agreed in writing that the sale of property X is the supply of a going concern.

Entity X and the purchaser have agreed that the sale of property X is a supply of a going concern for the purposes of the GST Act (a specified clause and specified special condition). A specified clause of the contract of sale provides that if the contract says the sale is the supply of a going concern the vendor must, between the contract date and completion, carry on the enterprise conducted on the land in a proper and business-like manner.

A specified clause of the contract provides that the parties warrant that they are registered or required to be registered for GST and will continue to be so at all relevant times up to completion of the contract.

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 38-325

Reasons for decision

Summary

Your sale of property X will be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) 1999 Act (GST Act) because:

      • you will supply all of the things necessary for the continued operation of your leasing enterprise; and

      • you will carry on the leasing enterprise up to the time of settlement of sale; and

      • the sale of the property is for consideration; and

      • the purchaser warrants that they are registered or required to be registered for GST at all relevant times up to the completion of the contract; and

      • you and the purchaser have agreed in writing that the sale of the property is the supply of a going concern.

Detailed reasoning

Subjection 38-325(1) of the GST Act sets out the requirements for a supply of a going concern to be GST-free. It 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.

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

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).

Goods and Services Tax Ruling GSTR 2008/3 Goods and services tax: dealings in real property by bare trusts (GSTR 2008/3) explains how the GST Act applies to supplies of real property involving bare trusts where the bare trustee has limited active duties and acts solely at the direction of the beneficiary or beneficiaries.

GSTR 2008/3 provides that a bare trust as that term is used in that ruling does not carry on an enterprise for GST purposes by virtue of its dealings in the trust property.

If the bare trustee leases the property or transfers legal title to the property to a third party at the direction of the entity that controls the bare trust, it is the entity that controls the bare trust that is carrying on the leasing enterprise and causes the supply to be made in the course of its enterprise and is liable for GST.

You advised us that Entity X holds the legal ownership in property X as a bare trustee on your behalf. Accordingly, you are the entity that carries on the leasing enterprise and will sell the property in the course or furtherance of your enterprise.

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? at Paragraph 75 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.

Property X is 100% leased and will be sold subject to the existing tenancies. The expiry dates of these leases fall after the settlement date.

Hence, you will supply all of the things necessary for the continued operation of your leasing enterprise to the purchaser. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met.

You will carry on your leasing enterprise from the entire property up to the time of settlement. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is met.

Hence, your supply of property X together with your interests in the existing tenancies will be a supply of a going concern for the purposes of subsection 38-325(2) of the GST Act.

The supply of property X will also meet all of the requirements of subsection 38-325(1) of the GST Act as:

      • you will sell the property for consideration (paragraph 38-325(1)(a) of the GST Act)

      • the purchaser warrants that they are registered or required to be registered for GST at all relevant times up to completion of the contract (paragraph 38-325(1)(b) of the GST Act), and

      • you and the purchaser have agreed in writing that the sale of property X is the supply of a going concern (paragraph 38-325(1)(c) of the GST Act).

The supply of property X with all leases intact is a GST-free supply of a going concern as it meets all the requirements of section 38-325 of the GST Act.


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