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Edited version of private advice
Authorisation Number: 1051612217490
Date of advice: 26 November 2019
Ruling
Subject: Input tax credits
Question
Are you entitled to claim input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 on the purchase of the property?
Answer
Where the vendor:
· carries on the leasing enterprise until the date of settlement of the contract of sale; and
· assigns this lease to you,
the sale of the property is a GST-free supply of a going concern. Accordingly you are not entitled to claim any input tax credits under section 11-20 of the GST Act.
Relevant facts and circumstances
· You entered into a contract (contract of sale) to purchase the property.
· The property contains a commercial warehouse (premises).
· The premises were leased by the vendor to an unrelated third party (original tenant).
· The original tenant vacated the premises following damage sustained to the Building by building works being undertaken next door.
· After the premises were repaired, the vendor promoted the property for lease through a real estate agent.
· There is a list of prospective tenants that have expressed interest to lease the property.
· The vendor will enter into a lease prior to settlement of the contract of sale and carry on this leasing enterprise until the date of settlement.
· Under the contract of sale, the vendor will assign its lease to you.
· The contract of sale also provides that the supply is a GST-free supply of a going concern.
· You are registered for GST.
Relevant legislative provisions
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:
You are entitled to the input tax credit for any * creditable acquisition that you make.
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
A creditable acquisition is defined in section 11-15 of the GST Act as follows:
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a * creditable purpose; and
(b) the supply of the thing to you is a * taxable supply; and
(c) you provide, or are liable to provide, * consideration for the supply; and
(d) you are * registered, or * required to be registered.
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
What needs to be determined is whether the sale of the property to you was a taxable supply. A taxable supply is defined in section 9-5 of the GST Act. Section 9-5 states that a GST-free supply is not a taxable supply.
The relevant GST-free provision to consider in this case is section 38-325 which states as follows:
38-325 Supply of a going concern
(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).
Supply of a going concern
Subsection 38-325(2) of the GST Act requires the identification of an enterprise. Based on the information provided by you, it is the Commissioners' view that the vendor of the property has been carrying on an enterprise of leasing of the property. The fact that the leasing activities were required to be terminated due to damages caused is not considered to be a cessation of the enterprise. This is supported at paragraph 151 of goods and services tax ruling, Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5).
Accordingly, provided that the vendor continues to carry on the leasing enterprise and assigns the lease to you as provided in the sale contract, the sale of the property meets the requirements of a supply of a going concern as provided in subsection 38-325(2) of the GST Act.
Where the sale is a supply of a going concern, it is the Commissioners' view that the requirements of subsection (1) are satisfied as:
· the sale is for consideration,
· you are registered for GST,
· you and the vendor have agreed in writing that the sale is a supply of a going concern.
Where the supply of the property to you is a GST-free supply of a going concern, the supply is not taxable. Since the supply is not taxable no input tax credits are available to you as purchaser.