Edited version of private advice

Authorisation Number: 1051903383632

Date of advice: 29 September 2021

Ruling

Subject: GST-free sale of a going concern

Question

Will the sale of the Property qualify as a GST-free sale of a going concern under section 38-325 of the A New tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

The Taxpayer is the owner of the Property.

The Taxpayer operates a leasing enterprise, consisting of 2 premises

The Taxpayer was approached by a third party who wishes to purchase the Property.

The Taxpayer and the Purchaser entered into a sales agreement.

As part of the sales agreement both the Taxpayer and the Purchaser agreed in writing:

•         The Taxpayer will continue its leasing enterprise of the property up to and including the time of the making of the supply under the sale agreement; and

•         To the extent that any part of the Property is not subject to a lease at any time prior to the completion of the contract, the taxpayer will actively market the Property for lease on commercial terms and attempt to lease those relevant parts of the Property.

It is also a part of the sales agreement that:

•         The parties agree in writing that the supply is a supply of a going concern

•         The supply is for consideration; and

•         The Taxpayer and the Purchaser are registered for GST

Relevant legislative provisions

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

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

Subsection 38-325(2) of a New Tax System (Goods and services Tax) Act 1999

Reasons for decision

Section 38-325 of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, if in the case of a supply which would otherwise be a taxable, or an input taxed supply, the supply is a GST-free supply if it is supplied under an arrangement for the supply of a going concern.

Section 38-325 of the GST Act states:

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 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 part of a larger enterprise carried on by the supplier).

All of these elements must be satisfied in order for the supply to be a GST-free sale of a going concern.

Based on the facts provided, the three elements in subsection 38-325 (1) of the GST Act will be satisfied at the time the supply is made. That is, the supply of the Property will be for consideration, the Purchaser of the Property is registered for GST and both the Purchaser and the Taxpayer have agreed in writing that the supply of the Property is a going concern.

Next consideration needs to be given on whether the requirements of subsection 38-325(2) of the GST Act are satisfied.

Goods and Services Tax Ruling, 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 of the GST Act and explains when a supply of a going concern is GST-free.

Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that are 'necessary' for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing.

Pursuant to the sales agreement, the taxpayer is providing a commercial property which includes two separate leased premises. Both the premises are currently leased, and the leases will continue after the date of the supply.

As a result, the supply of the leasing enterprise and the Property as detailed in the sales agreement and supporting evidence provided, meets the requirements of subsection 38-325(2) of the GST Act.

As the requirements of both subsection 38-325 (1) & (2) of the GST Act are satisfied the taxpayers sale of the leasing enterprise and the Property will be a GST-free sale of a going concern.