Edited version of private advice

Authorisation Number: 1052069290577

Date of advice: 9 December 2022

Ruling

Subject: GST and going concerns

Question 1

Is the sale of your property located at XXXX a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes

Relevant facts and circumstances

You are registered for GST effective from DD MM YYYY.

You own a commercial building located at XXXX (the Property).

You acquired the Property in YYYY.

The Property consists of multiple commercial units.

You have leased the commercial units from the date you acquired the Property.

The Property is currently fully tenanted.

You carry on an enterprise of leasing commercial property.

You have entered into a contract to sell the Property to a Purchaser.

The contract provides that the sale of the Property is subject to the existing tenancies.

The sale price pursuant to the contract is $$$.

The Purchaser is registered for GST effective from DD MM YYYY.

The Property will settle on DD MM YYYY.

You will carry on leasing the units on the Property until the date of settlement.

You and the Purchaser have agreed in writing that the sale of the Property is the supply of a 'going concern'.

Relevant legislative provisions

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

Reasons for decision

Note: In this reasoning, unless otherwise stated,

•                     all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•                     reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Subsection 38-325(2) provides that for GST purposes, 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 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) provides guidance on the application of the going concern provisions for GST purposes.

Identified enterprise

Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2).

In this case, given the facts provided we consider you have been carrying on an enterprise of leasing commercial property consisting of commercial units (the identified enterprise) at XXXX. You acquired the Property in YYYY and have leased the commercial units since that time. As such, the requirements under paragraphs 38-325(2)(a) and 38-325(2)(b) must be satisfied in relation to the identified enterprise for there to be a supply of a going concern.

Supply of all things necessary for the continued operation of an enterprise

Paragraph 107A of GSTR 2002/5 states in part that '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)'.

Paragraph 108 continues providing that in respect of an enterprise consisting solely of the leasing of property, all of the things that are necessary for the continued operation of the enterprise include the supply of the property and the covenants under the existing lease.

In this case, you have entered into a contract to sell the Property to the Purchaser. The Property is currently fully tenanted and the contract provides that the sale of the Property is subject to the existing tenancies.

The supplier carries on the enterprise until the day of the supply

Paragraph 141 of GSTR 2002/5 states:

141. The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

In this case it is accepted that there was an on-going leasing enterprise being carried on until the day of supply being DD MM YYYY.

Thus, in this case both of the requirements of subsection 38-325(2) have been satisfied and your supply of the Property subject to existing tenancies will, for GST purposes, meet the definition of a 'going concern'.

GST-free supply of a going concern

Subsection 38-325(1) provides that a 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

In this case, you receive consideration in the form of the sale price of $$$ and the Purchaser is registered for GST effective from DD MM YYYY. Furthermore, given the facts of this case, you and the Purchaser have agreed in writing that the sale of the Property would be a sale of going concern. Therefore subsection 38-325(1) has also been satisfied.

Conclusion

Your supply of the Property is a supply of a GST-free going concern pursuant to section 38-325.