Edited version of private advice

Authorisation Number: 1051791713557

Date of advice: 18 December 2020

Ruling

Subject: Goods and services tax and property

Question

Will your supply of the Property under the Contract be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

This ruling applies for the following period:

17 December 20XX to 16 December 20XX

The scheme commences on:

19 August 20XX

Relevant facts and circumstances

X (You) are registered for GST.

X is the trustee for the x. X is registered for GST.

On x you entered into a contract of sale with x. You agreed to sell and x agreed to buy the Property for the Purchase Price (Contract).

Under the Contract you agreed to sell and x agreed to buy your rights, title and interests in:

•         x;

•         the building or buildings erected on the Land (Buildings); and

•         the chattels, fixtures, fittings, plant and equipment on the Property at Completion except for any Exclusion (Inclusions),

(together, the Property).

The Exclusions are any chattel, fixture, fitting, furnishing, plant or equipment which is not owned by x, or the property of x, or noted in the Contract as an exclusion or not set out in the Building Contract or shown on any plans attached to the Building Contract as an item owned by you.

X has agreed to pay you the Purchase Price (x) as consideration for the Property. Practical Completion of the Building Works is expected to occur on or around x. Completion of the sale is expected to occur on or around x.

Building Works are currently being undertaken on the Property by the Builder. They are the design and construction of a distribution centre and associated works (as provided for under the Building Contract).

Clause x of the Contract provides that the parties agree that you are currently undertaking and will continue to undertake and complete the Building Works between the Contract Date and Completion.

Pursuant to clause x of the Contract, the Building Contract will be novated to x at Completion. This is for the purpose of x obtaining the benefits of warranties and indemnities under the Building Contract. The Building Works will be finished by the time Completion occurs.

Licence

On x you entered into a licence agreement with x. Therefore, you agreed to grant x a licence to use the Property on the terms of the licence agreement (Licence).

Under the Licence you granted x a personal, non-exclusive, non-proprietary and non-transferable right to access the Property. X can only access the Property for the Permitted Use. The Permitted Use being x.

The Commencement Date of the Licence is x. The End Date of the Licence is x or earlier, by mutual agreement of all relevant parties to the Licence. The Licence Fee under x of the Licence is a fixed amount of x plus GST.

X has identified a third party tenant, x. X wants to lease the Property from Completion for use as a distribution facility. Further, x wants to take occupancy of certain parts of the Property to begin moving things on site.

X is a party to the Licence to enable x's occupancy. Clause x of the Licence expressly provides that x may sub-licence the Property, or parts of the Property, to x provided certain conditions are met.

X has granted the sub-licence. X is currently occupying approximately x of the site under an interim occupation certificate. That proportion is expected to increase, to approximately x of the site, after Practical Completion of the Building Works and before Completion of the sale.

Per clause x of the Licence, it is a requirement that that the licensee will have rights and access to the entire Property under the Licence.

Clause x of the Contract provides that on Completion, you will assign the Licence to x as the Licensor.

You will provide x all of the things that are necessary for the continued operation of your licensing enterprise. The things necessary are the Property and the Licence.

You and x have agreed in writing that the supply is of a going concern (clause x of the Contract).

You will carry on the leasing enterprise until the day of the supply.

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)

Reasons for decision

In this ruling, all legislative references are to the GST Act unless otherwise specified.

The 'supply of a going concern' is GST-free where the requirements of section 38-325 are met.

Subsection 38-325(2) states that a 'supply of a going concern' is a supply under an arrangement under which:

•         the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and

•         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).

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-Free? (GSTR 2002/5) discusses a supply of a going concern for the purposes of section 38-325. GSTR 2002/5 explains when a supply of a going concern is GST-free.

GSTR 2002/5 states in paragraphs 107A that:

107A. An identified enterprise may consist solely of the leasing of a property to a tenant or tenants. Such an activity is an enterprise under paragraph 9-20(1)(c). This is the case even though the leasing of the property may be carried on as part of the supplier's broader enterprise. Where the identified enterprise consists solely of leasing a property, management and services contracts related to the lease are not things necessary for the continued operation of that enterprise. That is, where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenant or tenants is all that is required to satisfy paragraph 38-325(2)(a).

Based on the information provided, you will supply all of the things that are necessary for the continued operation of the leasing enterprise to x. You will also carry on the leasing enterprise until the day of the supply.

As a result, your supply of the leasing enterprise meets the requirements of subsection 38-325(2). Therefore, you will be making a supply of a going concern under subsection 38-325(2).

Next consideration needs to be given to whether the requirements of subsection 38-325(1) are satisfied.

Subsection 38-325(1) of the GST Act provides that a 'supply of a going concern' is GST-free if:

•         the supply is for consideration; and

•         the recipient is registered or required to be registered for GST; and

•         the supplier and the recipient have agreed in writing that the supply is of a going concern.

Based on the facts provided, the three elements in subsection 38-325(1) are satisfied at the time that the supply is made. That is, the supply of the leasing enterprise is for consideration. X, the recipient, is registered for GST at the time of the supply. You and x have agreed in writing that the supply of the enterprise will be a supply of a going concern.

The requirements of both subsection 38-325(1) and (2) are satisfied. Accordingly, your sale of the Property subject to the Licence is a GST-free supply of a going concern.