| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1051499297121
Date of advice: 27 March 2019
Ruling
Subject: Sale of property as a supply of a going concern
Question
Is the sale of the property the supply of a GST-free supply of a going concern?
Answer
The sale of the property is a GST-free supply of a going concern to the extent that the sale relates to the farming portion of the land.
The sale of the land that is attributable to the residential portion is not subject to GST on the basis that that portion is not done in the course of your enterprise.
Relevant facts and circumstances
You own a property which consists of a farming portion and a residential portion.
You have been conducting a primary production enterprise on the farming portion of the property.
You are registered for GST.
You have been using the residential portion as your principle place of residence.
You ceased carrying on your enterprise on the farming portion of the property.
You allowed another entity (other entity) to take up your primary production enterprise and entered into a leasing enterprise with the other entity to lease the farming portion.
You subsequently entered into a contract of sale to sell the entire property to a third party (purchaser).
The purchaser is registered for GST.
You and the purchaser have agreed in writing that the sale of the farming portion of the property is the supply of a going concern.
You will be conducting the leasing enterprise until the date of settlement of the sale contract.
You will be assigning the lease to the purchaser.
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
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:
(1) 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.
(2) 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)
Paragraphs 38-325(2)(a) and (b) of the GST Act require the conditions to be satisfied in relation to an ‘identified enterprise’. The identified enterprise that you carry on is that of a leasing enterprise of the farming portion of the property.
Given that you carry on the enterprise until the date of settlement of the sale contract and will be assigning the lease to the purchaser, the sale of the farming portion of the property meets the requirements of subsection 38-325(2) of the GST Act.
We are also satisfied that the sale of the farming portion of the property meets the requirements of subsection 38-325(1) of the GST Act. Accordingly the sale of the farming portion of the property is a GST-free supply of a going concern.
The sale of the residential portion is not made in the course of your enterprise and therefore is not subject to GST as this sale does not meet the requirements of a taxable supply as defined in section 9-5 of the GST Act. It is out of scope of the GST.
You are required to use a reasonable method to apportion the sale price that is attributable to both the farming portion and the residential portion. The Commissioners’ views on what is a reasonable apportionment methodology are provided in Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts. Whilst the supply that you make is not subject to GST, the methodologies expressed in GSTR 2001/8 can be considered to apportion the consideration applicable to the sale price that is attributable to both the GST-free (sale of the farming portion) and non-taxable portion (the residential portion).