Date of advice: 07 Jan 1900

Edited version of private advice

Authorisation Number: 1052031013739

Ruling

Subject: GST

Question 1

Will the sale of the property, qualify as a GST-free sale of a going concern under section 38-325 of the GST Act?

Answer 1

Yes.

Question 2

Will the sale of the property still qualify as a GST-free sale of a going concern if the management agreement is not assigned, transferred or novated to the purchaser as part of the sale?

Answer 2

Yes.

Question 3

Does the purchaser's intention to develop the property in the future prevent the sale from being a GST-free sale of a going concern?

Answer 3

No.

This ruling applies for the following periods:

Financial year ending 30 June 2023, and

Financial year ending 30 June 2024.

The scheme commences on:

The date this ruling is issued.

Relevant facts and circumstances

The entity owns a large parking lot. (the property)

The property is used for car parking by the general public, operating on a pay and display ticket basis.

There are no long-term leases associated with the car parking spaces.

Included in the sale of the property are the chattels necessary for the operation of the car park.

The entity is registered for goods and services tax (GST) accounting for its reporting obligations on a quarterly basis.

The entity engaged a manager for the car park.

The entity proposes to sell the property with the car parking business intact. It is not proposed to transfer the management agreement as part of the sale.

The contract requires the purchaser to be registered for GST prior to settlement.

Both parties to the contract of sale have agreed in writing that the sale will be a GST-free supply of a going concern.

The entity will continue to run the car park up to and including the date of settlement.

The potential purchaser proposes to develop the site in the future.

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 section 9-5

A New Tax system (Goods and Services Tax) Act 1999 section 9-20

Reasons for decision

Question 1

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 in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is a GST-free supply if it is supplied under an agreement 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 off 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).

* denotes a defined term under section 195-1 of the GST Act

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

Based on the facts of this case, the three elements in subsection 38-325(1) would be met. That is, the supply of the property would be for consideration, the purchaser will be registered for GST at the time of the supply and the vendor and the purchaser have agreed in writing that the supply of the property will be a supply of a going concern.

Next, consideration needs to be given on whether the requirements under subsection 38-325(2) of the GST Act would be satisfied as part of this supply.

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

Paragraphs 21 to 23 of GSTR 2002/5 refers to what the enterprise is being referred to in paragraphs 38-325(2)(a) and (b) of the GST Act.

21. Paragraphs 38-325(2)(a) and (b) require the conditions to be satisfied in relation to and 'identified enterprise'.

22. The term 'enterprise' is defined in section 9-20 as an activity, or series of activities, done:

•                    In the form of a business; or

•                    In the form of an adventure or concern in the nature of trade; or

•                    On a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.

23. The meaning of the term 'enterprise' is wider than the meaning of the term 'business'. For example, the activity of leasing can be the subject of the 'supply of a going concern'.

Paragraph 29 of GSTR 2002/5 requires the identification of an enterprise that is being carried on by the supplier (the identified enterprise). This is the enterprise for which the supplier must provide all of the things necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

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 being 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.

In this case, the enterprise being carried on is of a car parking enterprise where the entity provides paid parking facilities to the general public for a fee.

The things necessary for the continued operation of the paid car parking enterprise are, the property, and the chattels provided as part of the contract. As all the things necessary for the continued operation of the car parking enterprise will be supplied on the date of supply, then we accept paragraph 38-325(2)(a) is satisfied.

As both parties have agreed in writing that the sale will be the sale of a GST-free going concern, all of the provisions under sections 38-325(1) and (2) are satisfied.

Question 2

The entity chose to engage a car park management company to manage the day to day running of the car parking enterprise. This management agreement is not being transferred to the purchaser of the enterprise as detailed in the contract of sale.

The management agreement is not necessarily a fundamental part of the car parking enterprise. The purchaser may choose to manage the enterprise themselves or enter into a management agreement with a third party after settlement.

Therefore, it is not necessary for the management agreement to be transferred, novated or assigned to the purchaser as part of the contract of sale to meet the requirements of a GST-free sale of a going concern under paragraph 38-325(2)(a) of the GST Act.

Question 3

The provisions under section 38-325 of the GST Act do not prevent a purchaser ceasing or changing the existing enterprise being carried on after the date of settlement. Section 38-325 of the GST Act states that the vendor of existing enterprise that is being sold is required to carry on that enterprise up to the date of supply.

The legislation does not stipulate how long the enterprise purchased must be carried on for after settlement, only that all thing necessary to carry on that enterprise must be provided at the time of supply.

Therefore, the future intentions of the purchaser of the car parking enterprise are irrelevant to the issue of whether the sale of the property in question will qualify as a GST-free sale of a going concern.