Edited version of private advice

Authorisation Number: 1051915334305

Date of advice: 25 February 2022

Ruling

Subject: Goods and Services Tax

Question

Will the sale of the land by the vendor to the purchaser meet the requirements of a supply of a going concern under subsection 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

•                    The entity carries on an enterprise of land development, subdivision and sale of subdivided lots.

•                    The entity is registered for the goods and services tax (GST).

•                    The entity is the registered proprietor on title of the specified vacant land (the property) in Australia.

•                    The property is part of the specified land development project.

•                    The vendor has obtained all approvals to rezone and develop the land.

•                    The entity is developing the property in stages. Some stages have been completed and some are currently underway.

•                    The entity has contracted various land development activities to contractors and consultants for the planning, development, and sale of the subdivided lots to occur.

•                    The land is currently being developed and being actively marketed for sale of the subdivided lots off the plan.

•                    The vendor has found a purchaser to purchase its property with the current continuing development.

•                    The sale of the property is for consideration specified in the relevant land sale contract.

•                    With effect from the completion date, the entity (as the vendor) will assign to the purchaser the benefit of all things necessary in connection with the development of the property including all approvals, plans, designs, computations, specifications, drawings in respect of the property.

•                    Contracts and relationships with contractors and consultants will be novated/assigned from settlement.

•                    Development related works are ongoing and will be carried on by the vendor up until completion. The purchaser will be able to continue those works post completion with the existing contractors.

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(2).

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

A supply of a going concern is GST-free where it meets the requirements specified in subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

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 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).

All above legislative terms marked with an asterisk are defined in section 195-1 of the GST Act.

The requirements in both subsection 38-325(1) and subsection 38-325(2) must be met for a supply to be GST-free.

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) provides the Commissioner's view on the application of the going concern provisions.

GSTR 2002/5 explains at paragraph 19 that the phrase 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise that has been identified.

Subsection 38-325(2) of the GST Act sets out the conditions that must be satisfied in relation to an identified enterprise. Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise').

In this case, the 'identified enterprise' being carried on by the vendor in relation to the relevant property is a property development enterprise which comprises land development, subdivision and sale of the subdivided lots under the project. It is this property development enterprise that the vendor will need to carry on until the day of the supply and for which the vendor must supply all of the things that are necessary for its continued operation in order for the conditions under subsection 38-325(2) to be satisfied.

On the facts provided, these conditions will be satisfied, and the sale of the property will meet the requirements of a supply of a going concern under subsection 38-325(2) of the GST Act.