Edited version of private advice

Authorisation Number: 1052035367976

Date of advice: 19 September 2022

Ruling

Subject: GST - property

Question 1

Is the sale of the property located in the indirect tax zone, known as X (Property 1), an input taxed supply of residential premises under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the property will be an input taxed supply of residential premises pursuant to section 40-65. Therefore, GST will not be payable on the sale.

Question 2

Is the sale of the property located in the indirect tax zone, known as X (Property 2), a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the property satisfies the requirements of section 9-5 and is neither GST-free nor input taxed; therefore, the sale of the property will be a taxable supply. Consequently, GST will be payable on the sale.

Question 3

Is the sale of the property located in the indirect tax zone, known as X (Property 3), 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. As all the requirements of section 38-325 will be satisfied, the sale will be a GST-free supply of a going concern. Therefore, GST will not be payable on the sale.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Entity B is the corporate trustee of Entity A.

Entity A (You) have been registered for GST since DD/MM/YYYY.

You are carrying on a leasing enterprise of residential and commercial properties.

You are in the process of selling the following properties (the Properties) to X (the Purchaser):

Further details in relation to the Properties in the above table:

(1)  Property 1

•         You acquired the property located in the indirect tax zone (Property 1) on DD/MM/YYYY.

•         The property was not acquired as a taxable supply.

•         The property is a residential dwelling that contains X bedrooms, X bathrooms, a kitchen, dining room, living room and X car spaces on Xm² of land.

•         Since acquiring the property, it has been leased as residential premises.

•         A Residential Tenancy Agreement was entered into for a fixed term of X weeks starting DD/MM/YYYY and ending DD/MM/YYYY for rent payable of $X per week. The agreement continued as a periodic agreement once the fixed term ended.

•         The executed Sales Contract dated DD/MM/YYYY provides that:

-       the supply to the Purchaser is subject to existing tenancies

-       the sale is not a taxable supply

-       the margin scheme will not apply

-       the sale is input taxed because the sale is of eligible residential premises (sections 40-65, 40-75(2) and 195-1)

-       the supply of the property will be for consideration of $X.

(2)  Property 2

•         You acquired the property located in the indirect tax zone (Property 2) on DD/MM/YYYY financed by way of a bank loan.

•         The property comprises an area of Xm².

•         There was a residential dwelling on the land when it was acquired; however, the dwelling was demolished shortly after acquisition.

•         At the time of this ruling application, you are unable to explain why the residential dwelling was demolished.

•         Following the demolition of the residential dwelling, the property has remained vacant with no structures erected. The property has not been used for any income producing purposes.

•         The property is recorded as a non-current asset in your accounts.

•         The property has continued to incur council rates and land tax.

•         The executed Sales Contract dated DD/MM/YYYY provides that:

-       the supply to the Purchaser is subject to vacant possession

-       the sale is not a taxable supply

-       the margin scheme will not apply

-       the sale is input taxed because the sale is of eligible residential premises (sections 40-65, 40-75(2) and 195-1)

-       the supply of the property will be for consideration of $X.

(3)  Property 3

•         You acquired the property located in the indirect tax zone (Property 3) on DD/MM/YYYY.

•         The property was not acquired as a taxable supply.

•         The property is a commercial property comprising an area of Xm².

•         Since acquiring the property, it has been leased as commercial premises under a lease agreement.

•         A X year fixed term Lease Agreement was entered into starting DD/MM/YYYY and ending DD/MM/YYYY, with rent payable of $X (plus GST) via equal monthly instalments of $X (plus GST). The Lessee is X.

•         The executed Sales Contract dated DD/MM/YYYY provides that:

-       the supply to the Purchaser is subject to existing tenancies

-       the sale is not a taxable supply

-       the margin scheme will not apply

-       the sale is GST-free because the sale is a supply of a going concern under section 38-325

-       the supply of the commercial property along with all the rights and obligations under the existing lease will be for consideration of $X.

•         You will continue to lease the property until the day of the supply (settlement).

•         You and the Purchaser have agreed in writing the sale of Property 3 will be a supply of a going concern under section 38-325.

•         You will supply to the Purchaser all of the things that are necessary for the continued operation of an enterprise, which includes the existing lease agreement with tenants in this property.

Additional information

Property 1 and Property 2 are adjacent adjoining lots.

Property 1 and Property 3 are adjoining lots connected via the back boundary line.

You do not own any other properties.

The Development Application

On DD/MM/YYYY, a Development Application (DA) was lodged with the Local Council for demolition works and construction of a mixed use multi storey development. The DA includes all properties referred to in Schedule 2 (the Adjoining Properties), which includes Property 1, Property 2 and Property 3. See Appendix A.

You and the other landowners of the Adjoining Properties subject to the DA engaged a town planner, X, who prepared, compiled, lodged and negotiated the DA on the landowner's behalf.

The DA was the subject of an extensive Pre-DA process with Council which commenced in YYYY.

The DA was approved in MM/YYYY.

The primary purpose for lodging the DA was to enhance and improve the sale prospects of the land and increase the realisable value of all lots.

You and the other landowners of the Adjoining Properties subject to the DA considered undertaking the development as per the DA; however, this did not eventuate.

The Contracts of Sale

In MM/YYYY, a representative of the Purchaser made contact with a local Real Estate Agent to enquire about purchasing the Adjoining Properties.

The Vendors in Schedule 2 and the Purchaser proceeded to negotiate their respective sales of property.

On DD/MM/YYYY, you entered into Sales Contractswith the Purchaser for the sale of the Properties. The date for completion of each Sales Contract is X months after the contract date.

The Purchaser has been registered for GST since DD/MM/YYYY with ABN.

You and Purchaser are not associates.

The completion of the Sales Contracts is subject to and conditional upon the simultaneous completion of the sale of the Adjoining Properties. Clauses X - X in the Sales Contracts provide:

X Simultaneous Completion of Contracts

X.X Completion of this Contract is subject to and conditional upon the simultaneous completion of the sale of the properties referred to in Schedule 2 hereto.

X.X Should completion of any one or more of the properties in Schedule 2 not be completed simultaneously with the completion with the sale and purchase of the other properties referred to in Schedule 2 hereto the Vendor will be entitled to delay completion of this Contract until simultaneous completion of all of the sale and purchase Contracts of all of the properties in Schedule 2 is able to be effected.

X Assignment of Rights, Title and Interest

X.X Upon completion the Vendor will assign all of its right, title and interest in Development Application X together with any and all copyright and all documentation relating to the property including, without limitation, plans, drawings and reports obtained by or commission by the Vendor or anyone on the Vendor's behalf to the Purchaser.

...

You will not demolish or develop anything on the Properties prior to settlement.

APPENDIX A

Schedule 2 to Contract for Sale and Purchase of Land Between Entity B AND the Purchaser.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

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

Reasons for decision

Question 1

Detailed reasoning

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with the indirect tax zone; and

(d)  you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the facts in this case, with respect to Property 1:

•         the supply will be for consideration of $X

•         the supply will be in the course or furtherance of your leasing enterprise

•         the property is located in the indirect tax zone

•         you will be registered for GST at the time of the supply.

Therefore, your supply of Property 1 will be a taxable supply unless it is GST-free or input taxed.

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

There are no provisions in the GST Act under which your sale of Property 1 will be GST-free. There is no agreement in writing between you and the Purchaser that the supply is of a going concern.

Therefore, what remains to be determined is whether your sale of Property 1 will be input taxed.

Input taxed supplies

If a supply is input taxed, then:

•         no GST is payable on the supply;

•         there is no entitlement to an input tax credit for anything acquired or imported to make the supply.

Subsection 40-65(1) provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation).

However, subsection 40-65(2) states that the sale of real property is not input taxed to the extent that the residential premises are:

(a)  commercial residential premises; or

(b)  new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Based on the information supplied, the characteristics of Property 1 and how the premises have been used do not meet the requirements of commercial residential premises as defined in section 195-1, or the requirements of new residential premises as defined in section 40-75.

Residential premises

The term 'residential premises' is defined in section 195-1 to mean land or a building that:

(a)  is occupied as a residence or for residential accommodation; or

(b)  is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

Paragraph 20 of GSTR 2012/5 provides that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation.

In your case, Property 1 has the physical characteristics of a residential dwelling consisting of X bedrooms, X bathrooms, kitchen, dining room, living room and X car spaces on Xm² of land. The property has an existing residential lease agreement in place and is being occupied as a residence. Therefore, Property 1 satisfies the definition of 'residential premises' for the purposes of section 195-1.

The fact that the DA, that will be assigned to the Purchaser upon completion of the Sales Contracts, allows the Purchaser to demolish the existing dwelling and construct a mixed use multi storey development on the land does not mean that Property 1 is not to be used predominantly for residential accommodation. This is explained in Example 1 in paragraphs 12 and 13 of GSTR 2012/5:

Example 1 - purchaser's intention not to use premises for residential accommodation

12. John carries on an enterprise which involves leasing a house on property which he owns. Based on the physical characteristics of the house it is residential premises to be used predominantly for residential accommodation. The area in which the house is located has recently been rezoned by the local Council to permit higher density residential apartments. Following the rezoning, a developer, Knock Them Down Co, approaches John and offers to purchase his property. Knock Them Down Co intends to demolish the house, redevelop the property into a new apartment building, and sell the apartments.

13. The fact that Knock Them Down Co does not intend to use the house to provide residential accommodation does not mean that the house is not residential premises to be used predominantly for residential accommodation. Knock Them Down Co's intention is not a relevant factor in determining the character of the premises. Based on its physical characteristics, the house is residential premises to be used predominantly for residential accommodation. The sale of the house by John to Knock Them Down Co is an input taxed supply under section 40-65.

As per the Sales Contracts entered into, the property is an input taxed supply of residential premises under section 40-65.

The supply of Property 1 is not a taxable supply as per section 9-5 of the GST Act.

Question 2

Detailed reasoning

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with the indirect tax zone; and

(d)  you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

For your sale of Property 2 to be a taxable supply, all the requirements in section 9-5 must be satisfied.

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

There are no provisions in the GST Act under which your sale of Property 2 would be a GST-free or input taxed supply. Despite the terms included in the contract of sale, that the sale is input taxed because the sale is of eligible residential premises (sections 40-65, 40-75(2) and 195-1), the property supplied is vacant land.

Based on the facts in this case:

•         the supply will be for consideration of $X

•         the property is located in the indirect tax zone

•         you will be registered for GST at the time of the supply.

In your case, you acquired Property 2 in MM/YYYY and the existing residential dwelling was demolished soon after your acquisition. Following the demolition, the property has remained vacant and has not been used for any income producing purposes.

As you have not leased Property 2, the sale of the property will not be in the course or furtherance of your leasing enterprise. We are therefore required to consider whether the supply will be in the course or furtherance of any other enterprise that you carry on as per subparagraph 9-5(b).

Enterprise

Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done:

(a)  in the form of a business; or

(b)  in the form of an adventure or concern in the nature of trade; or

(c)   on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The definition of 'carrying on' an enterprise can be found in section 195-1:

carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

This definition ensures that activities done in the course of the commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides guidelines on the meaning of carrying on an enterprise.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraphs 177 to 179 of MT 2006/1 discuss the main indicators of carrying on a business, and state:

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

Given the facts of this case, we consider that your activities do not display the salient indicators of a 'business' listed above, which ordinarily encompass trade engaged in, on a regular or continuous basis.

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

We now consider whether your activities will be in the form of an adventure or concern in the nature of trade as per subparagraph 9-20(1)(b).

The commercial nature of a transaction or scheme is significant in determining whether the activities are done in the form of an adventure or concern in the nature of trade. This is further explained in MT 2006/1:

237. The term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-going business. Both terms require the features of a business deal, see McClelland v. Federal Commissioner of Taxation, in which Lord Donovan, delivering the opinion of the majority, said:

It seems to their Lordships that an 'undertaking or scheme' to produce this result must - at any rate where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal. It is true that the word 'business' does not appear in the section; but given the premise that the profit produced has to be income in its character their Lordships think the notion of business is implicit in the words 'undertaking or scheme'.

Paragraph 244 of MT 2006/1 further explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' with paragraphs 247 to 257 discussing the various 'badges of trade' that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, or held as an investment asset or for personal enjoyment.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues, stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Paragraph 266 of MT 2006/1 provides in part that no single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade and there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion.

Paragraph 270 of MT 2006/1 provides that in isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are in the form of business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

The term in the course or furtherance of an enterprise is explained in Goods and Services Tax Ruling GSTR 2009/2 Goods and services tax: partitioning of land at paragraphs 61 to 65. Although your supply is not by way of partitioning, the explanation is relevant to your circumstances.

In the course or furtherance of an enterprise

61. The phrase, 'in the course or furtherance of an enterprise' is not defined in the GST Act. The phrase forms part of the requirements that must be satisfied in order for a taxable supply to be identified for the purposes of establishing a liability to GST.

62. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (the Explanatory Memorandum), at paragraph 3.10, supports a broad meaning of the phrase 'in the course or furtherance of'. It states:

In the course or furtherance is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. In the course or furtherance does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.

63. Having regard to the context in which the phrase 'in the course or furtherance of' appears and the above statement from the Explanatory Memorandum, the phrase should be given a broad meaning so as to encompass supplies made in connection with the relevant enterprise.

64. The application of an asset in an enterprise establishes the necessary connection between the supply of an asset and the relevant enterprise. Given the broad meaning of 'in the course or furtherance of', the supply of an interest in land under a partition is capable of being made in the course or furtherance of an enterprise where the relevant interest in the land has been applied in an enterprise carried on by the co-owner.

65. The GST Act does not require that an asset must be applied primarily or principally in carrying on the enterprise for the supply of an asset to be in the course or furtherance of an enterprise. Accordingly, a connection between the supply of the interest in land under a partition and the enterprise carried on by the co-owners exists even if, at the time of the supply, the land is applied in carrying on the enterprise to a minor or secondary extent.

Application to your situation

Based on the facts of the case, we consider the activities you have undertaken have been carried out in a business-like manner, with the ultimate goal being the realisation of profit.

As set out in the facts, with respect to Property 2:

•         you acquired the property as part of a joint acquisition with adjoining lots Property 1 and Property 3 on DD/MM/YYYY

•         you borrowed funds to finance the acquisition of the property

•         you demolished the residential dwelling shortly after acquiring the property and the property has remained as vacant land

•         after demolishing the residential dwelling, you retained the property as a business asset

•         you have incurred and paid for costs such as rates and taxes associated with maintaining the property

•         the property has not been used for any income producing purposes since its acquisition

•         in YYYY, you and the landowners of the Adjoining Properties, with whom you are associates, engaged a town planner and commenced the DA process with your primary objective being to enhance and improve the sale prospects of the land and increase the realisable value of all of the Adjoining Properties, including Property 2

•         you entered into a Sales Contract in MM/YYYY, whereby upon completion you will assign all of your right, title and interest in the DA to the Purchaser.

Following the demolition of the residential dwelling at Property 2 the property was retained as a business asset. The property remained vacant and was neither redeveloped for leasing purposes nor used for any private or domestic purposes by your beneficiaries.

After holding the property for a period of approximately X years, you commenced various activities including an extensive DA process, to realise the Properties and to better maximise your return. You engaged third parties to develop plans for the possible use of the Properties and obtained council approval for these plans. It is understood that the Purchaser is not obliged to use the development approvals provided by council, but these activities were considerably more than was required to sell the Properties.

The activities undertaken by you leading up to the sale of this property in combination with your other properties were done in the form of an adventure or concern in the nature of trade and as such fall within the definition of enterprise under subsection 9-20(1). This is because your activities have the characteristic of a business deal and the transaction was entered into, and the profit will be made, in the course of carrying out a business operation or commercial transaction.

It is also the case this property being an asset recorded as part of your business enterprise, there is the necessary connection between the supply of this asset and the enterprise being carried on by You, that includes a leasing enterprise. Accordingly, paragraph 9-5(b) of the GST Act is satisfied as you will be making the supply in the course or furtherance of an enterprise that you carry on.

Given the facts of this case, your sale of Property 2 satisfies all of the positive limbs of section 9-5 and is neither GST-free nor input taxed. Therefore, the sale will constitute a taxable supply as defined for GST purposes.

Question 3

Detailed reasoning

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with the indirect tax zone; and

(d)  you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the facts in this case, with respect to Property 3:

•         the supply will be for consideration of $X

•         the supply will be in the course or furtherance of your leasing enterprise

•         the property is located in the indirect tax zone

•         you will be registered for GST at the time of the supply.

Accordingly, the supply of Property 3, subject to leases, is a taxable supply under section 9-5 of the GST Act, unless the supply is a GST-free supply under Division 38 or an input taxed supply under Subdivision 40-C.

As the sale of the property is a commercial property, the supply will not be an input taxed supply. Therefore, what remains to be considered is whether the supply of the commercial property is a GST-free supply of a going concern.

Supply of a going concern

A supply will be a GST-free supply of a going concern where the requirements of section 38-325 of the GST Act are met. This section 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).

Based on the facts of this case, the three requirements in subsection 38-325(1) will be satisfied at the time of supply. That is, the supply of the property is for consideration, the Purchaser of the property is registered for GST and both the Vendor and the Purchaser have agreed in writing that the supply of the property is of a going concern.

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

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) explains what a 'supply of a going concern' is for the purposes of section 38-325.

A supply is defined in section 9-10. The term '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 is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the 'identified enterprise').

In addition, paragraph 29 of GSTR 2002/5 notes that subsection 38-325(2) 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 supply all of the things that are 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.

The term 'enterprise' is defined in section 9-20 and includes an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

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.

Paragraph 80 of GSTR 2002/5 provides that the supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.

Paragraph 107A of GSTR 2002/5 also provides that 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 is one of leasing, the supply of the property subject to the existing leases to the tenants is all that is required to satisfy paragraph 38-325(2)(a).

Based on the facts in this case:

•         the identified enterprise is the leasing of commercial premises

•         you will supply to the Purchaser all of the things that are necessary for the continued operation of an enterprise. This includes the tenanted commercial property located at Property 3 and the existing lease agreement you have in place with the tenant

•         you will carry on the leasing enterprise up to and including the settlement date.

On this basis, you will satisfy the requirements of subsection 38-325(2).

Consequently, as all the requirements of section 38-325 will be satisfied, the sale will be a GST-free supply of a going concern. On this basis, it is not a taxable supply under section 9-5.