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Edited version of your written advice
Authorisation Number: 1051234027570
Date of advice: 7 June 2017
Ruling
Subject: GST and sale of leasing property
Question 1
Will the sale of your property to the purchaser qualify as a GST-free supply of a going concern?
Answer
Yes. The sale of the property to the purchaser will qualify as a GST-free supply of a going concern.
Relevant facts and circumstances
You are selling a property.
The purchaser is registered for GST.
You and the purchaser have agreed in writing that the sale will be one of a GST-free going concern.
You will carry on your enterprise until the day of the supply.
You will provide everything necessary for the purchaser to continue carrying on the identified enterprise.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 38-325.
Reasons for decision
Going concern
Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a 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.
In this case the supply is for consideration.
We are informed that the buyer is registered for GST.
We are also informed that you and the purchaser have agreed in writing that the supply is a supply of a going concern.
However, for a supply to be a supply of a going concern subsection 38-325(2) of the GST Act also needs to be satisfied.
The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act 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 (whether or not as a part of a larger enterprise carried on by the supplier).
Until the day of the supply
According to the facts provided you will continue to carry on your enterprise until the day of settlement (the date the business is transferred to the buyer).
We therefore agree that you will carry on the enterprise until the day of the supply. Paragraph 38-325(2)(b) of the GST Act will be fulfilled.
All of the things necessary
For you to make a supply of a going concern it needs to be determined whether you supply to the buyer all of the things that are necessary for the continued operation of your enterprise under paragraph 38-325(2)(a) of the GST Act.
Goods and Services Tax Ruling GSTR 2002/5 explains what is a supply of a going concern.
GSTR 2002/5 considers the meaning of the phrase all of the things that are necessary for the continued operation of an enterprise. In particular, paragraphs 73, 74 and 29 of GSTR 2005 state:
73. A thing is necessary for the continued operation of an identified enterprise if the enterprise could not be operated by the recipient in the absence of the thing. For example, a boat may be essential to the conduct of the businesses of a professional fisherman, a water-ski instructor, a deep-sea diving instructor or a repairer of underwater structures because, in most instances, the relevant business could not be conducted at all without a boat. The supplier must supply the boat for the continued operation of the enterprise.
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.
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.
In this case we are informed that the identified enterprise will be carried on until the day of the supply.
Consequently, we are of the view that the purchaser’s acquisition will be an acquisition of a GST-free going concern. As the acquisition of the enterprise of licencing the Property will not be a creditable acquisition there will be no entitlement to input tax credits.