Edited version of your private ruling

Authorisation Number: 1052088007443

Date of advice: 23 February 2023

Edited version of private advice

Ruling

Subject: GST-free sale of a going concern

Question

Does the sale of the fully tenanted commercial property qualify as a GST-free sale of a going concern in accordance with section 38-325?

Answer

Yes.

This ruling applies for the following period:

Financial Year ending 30 June 20XX

The scheme commences on:

The date this notice of decision is issued.

Relevant facts and circumstances

•         The property consists of two commercial properties being warehouses.

•         A contract of sale of the property was entered into on xxxx with settlement occurring on xxxx.

•         The property was sold fully tenanted, with lease agreements included in the sale.

•         The property remained tenanted until the date of sale.

•         The purchaser registered for GST.

•         The contract of sale included a written agreement between both the vendor and the purchaser that the sale of the property is a GST-free sale of a going concern.

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)

Reasons for decision

Section 38-325 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 arrangement for the supply of a going concern.

Section 38-325 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 part of a larger enterprise carried on by the supplier).

All these elements must be satisfied 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) have been met. That is, the supply of the property along with the leasing enterprise was for consideration, the recipient was registered for GST at the time of the supply (settlement date) and the vendor and the purchaser agreed in writing that the supply of the property was a supply of a going concern.

Consideration then needs to be given to whether the requirements under subsection 38-325(2) have been satisfied.

Goods and Services Taxation Ruling 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 and explains when the supply of a going concern is GST-Free.

Paragraph 29 of GSTR 2002/5 requires the identification of an enterprise that is being carried on by the supplier (identified enterprise). This is the enterprise for which the supplier must supply all of the things necessary for the 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.

In this case, the enterprise being carried on was a leasing enterprise which, when sold, consisted of the commercial property and the existing commercial leases that were already in existence prior to the sale. The leases were transferred to the purchaser upon settlement. The leasing enterprise continued to be carried on by the vendor until the date of settlement.

Based on the above, the two elements of subsection 38-325(2) have been satisfied. As a result, the sale of the leasing enterprise along with the subject property, qualified as a GST-free sale of a going concern in accordance with section 38-325.