| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1051350627476
Date of advice: 20 March 2018
Ruling
Subject: GST and the supply of a going concern
Questions
1. Is the sale of the property the supply of a going concern if the existing lessee remains as a month-to month tenant?
2. Is the sale of the property the supply of a going concern if the existing lessee vacates the premises prior to settlement?
Answers
1. Yes, the sale of the property is the supply of a going concern where the existing lessee remains as a month-to-month tenant.
2. No, the sale of the property is not the supply of a going concern where the existing lessee vacates the premises prior to settlement.
Relevant facts and circumstances
You entered into a contract to sell your property to a purchaser.
You have leased the property to a lessee on a month to month basis with a right to terminate the lease by one month notice to the other party.
The settlement date of the sale of the property is on a particular date.
Under the sale contract you will be assigning the interest in the lease that you have with the lessee to the purchaser if at the time of sale the lessee remains in the property.
If the lessee does not vacate the property before settlement, you will be leasing the property to the lessee until the day of settlement.
You and the purchaser have agreed in writing that the sale is a sale of a going concern,
The purchaser is registered for GST.
If the lessee vacates the property before the settlement date you will be selling just the property.
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Subsection of the 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Ac) 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).
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act.
Where the tenant remains:
The sale of the property meets the requirements of subsection 38-325(2) of the GST Act because:
- you have entered into an arrangement in relation to supply your enterprise of leasing,
- you will be assigning the interest in the monthly lease that you have with the lessee to the purchase; and
- you will be carrying on the leasing enterprise until the day of the supply
Pursuant subsection 38-325(1) of the GST Act, the supply of a going concern is GST-free where the following conditions are satisfied:
- 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 of a going concern.
Given that the sale will be made for a sale price, the purchaser is registered for GST and you and the purchaser have agreed in writing that the sale is a supply of a going concern, the requirements of subsection 38-325(1) of the GST Act are also satisfied. Accordingly the sale of the property is a GST-free sale of a going concern.
Where the lessee vacates before settlement:
The supply does not meet the requirements of a supply of a going concern as you will not be operating an enterprise and therefore not supplying everything that is necessary for the continued operation of an enterprise. Accordingly, the requirements of subsection 38-325(2) of the GST Act are not satisfied in this situation.