Edited version of private advice

Authorisation Number: 1051614184718

Date of advice: 29 November 2019

Ruling

Subject: GST and sale of real property

Question

Is the supply of the Property by the Vendor to the Purchaser a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of the Property by the Vendor to the Purchaser is a GST-free supply of a going concern because all the requirements of section 38-325 of the GST Act are satisfied as follows:

• The Vendor supplied to the Purchaser the leasing enterprise, consisting of the Property and the assignment of the Lease Proposal on the Settlement Date. Hence, we consider that all of the things necessary for the continued operation of the leasing enterprise is supplied under the arrangement as required by paragraph 38-325(2)(a) of the GST Act.
• The requirement of paragraph 38-325(2)(b) of the GST Act is also met as the Vendor carried on the enterprise of leasing the Property until the completion of the sale.
• The supply of the Property was made for consideration. Hence, the requirement of paragraph 38-325(1)(a) of the GST Act is met.
• The Purchaser was registered for GST at the time of the supply. Hence, the requirement of paragraph 38-325(1)(b) of the GST Act is met.
• The Vendor and the Purchaser agreed in writing that the supply of the Property is a supply of a going concern for the purposes of the GST Act. Hence, the requirement of paragraph 38-325(1)(c) of the GST Act is met.

Relevant facts

The Vendor was the registered proprietor of the Property.

The Property is an office building which comprises of a number of levels and a number of car parking spaces.

The Vendor entered into a contract of sale of real estate with Mr A to sell and transfer the Property to Mr A and/or their nominee for a specified sum (exclusive of GST) (Original Contract). The Original Contract was subsequently amended by a number of deeds of variation. In this private ruling the Original Contract together with the said deeds of variation is referred to as 'Contract'.

The Contract provides that if the sale of the land is of a 'going concern' then the words 'going concern' are added in the relevant box. The words 'Going concern' appear in the relevant box.

The Contract provides that at the time of settlement the purchaser is entitled to vacant possession of the Property unless the words 'subject to lease' are added in the relevant box. The words 'subject to lease' appear in the relevant box.

The Contract provides the particulars of the lease that was in place at the time of the execution of the Contract.

Pursuant to the special condition of the Contract, the Purchaser acknowledged, among other things, that the Property was sold subject to the lease.

Under the special condition of the Contract it was the intention of the parties that the Vendor would do all things which would usually be done or be required in the ordinary course of its business in relation to an income producing investment, including leasing out the vacant parts of the Property to prospective tenants in accordance with the terms of the Contract prior to settlement.

Under the special condition of the Contract, the Vendor was not to undertake any lease dealing without the prior written consent of the Purchaser.

Lease

When the Vendor initially acquired each suite of the Property, the entire Property was leased pursuant to a lease agreement which was to expire on a specified date. In anticipation of the then tenant vacating the Property, the Property was marketed for lease via a marketing campaign board and internet listings, by a real estate agent on behalf of the Vendor.

At the time when the Contract was entered into, some levels were vacant and there was an existing lease over some levels of the Property, together with a licence to use a number of car park spaces (collectively the Leased Area). That lease was granted to the Lessee at a specified date and was renewed on a specified date (Former Lease). The Former Lease expired on a specified date and was not renewed. After the expiration of the Former Lease, the Lessee continued to occupy the Leased Area (including all car parks located in the Property) under overholding provisions contained in the Former Lease until after the execution of the Contract but before the Settlement Date.

In order to facilitate leasing of the Property, the Vendor appointed a real estate agent to carry on marketing campaigns on behalf of the Vendor to lease the Property to prospective tenants. The real estate agent actively marketed the entire Property for lease from the time of its appointment and conducted an array of inspections with various prospective tenants.

As a result of the marketing campaign, the real estate agent, on behalf of the Vendor, was able to secure a lease proposal from Company X to lease the entire Property.

Shortly before settlement, Company X accepted the proposal to lease the entire Property for a period of a number of months commencing from a few days before Settlement (Lease Proposal).

Following the execution of the Lease Proposal, a holding deposit was paid by Company X to the real estate agent.

A formal lease of the entire Property was subsequently entered into between the Purchaser as Lessor and Company X. The Lease commenced after Settlement, with the term being a number of months from commencement.

Pursuant to special condition of the Contract, the Vendor and the Purchaser agreed that the supply of the Property is of a going concern.

By a nomination form prior to Settlement Date, the Purchaser was nominated and accepted as substitute purchaser to take a transfer or conveyance in lieu of Mr A under the Contract.

Settlement of the Property occurred on a specified date.

The Vendor and the Purchaser are unrelated parties and the Property was sold on an arm's length commercial basis.

Both the Vendor and the Purchaser were registered for GST at the time of settlement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(2).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(a).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(b).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(c).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(2)(a).

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(2)(b).