Edited version of private advice

Authorisation Number: 1052131156806

Date of advice: 20 June 2023

Ruling

Subject: GST and the supply of property as a going concern

Question

Will your supply of the proposed lots to the Purchaser be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes.

This ruling applies for the following period(s)

DD MM YYYY - DD MM YYYY

The scheme commences on

DD MM YYYY

Relevant facts and circumstances

You have been registered for GST since a specified date.

The Buyer is a member of a Group.

You acquired the proposed lots, and lots X and X (the Lots) in connection with a development project.

The lots are referred to as 'a specified name' in the Development Plan.

Stage 1 of the development was completed in a specified month and year. This included the development of residential properties and associated commercial, retail and community sites.

On a specified date an Option agreement was exercised, which resulted in a sale contract for the proposed lots.

The proposed lots are subject to various restrictions.

At the time of entering into the sale contract, the physical development of the proposed lots had not substantially commenced.

The Tenant is in the same corporate group as the Buyer.

The Tenant will supply services to the Buyer under an Agreement entered into between the Tenant and the Buyer on a specified date. The Agreement outlines key points.

The services to be supplied under the Agreement include those identified as the Tenant's Works under the Lease.

The Tenant's use of the land under the Lease is described in the Permitted Use clause within the Special Conditions.

Pursuant to a clause of the Lease, the Tenant is required to comply with all of the restrictions relevant to the Proposed Lots.

Further, pursuant to a clause the Tenant must not commence Tenant's Works until all Approvals have been received.

As at the date of this ruling application, the Approvals have not been received and therefore the enterprise of the Seller is limited to the leasing of the Proposed Lots.

The Tenant is required to comply with all restrictions relevant to the proposed lots.

The Tenant must not commence their works until all approvals have been received.

The following documents supplied form part of this application:

•                     Contract for Commercial Land and Buildings (Sale Contract)

•                     Commercial Tenancy Agreement (Lease Agreement)

•                     Plan

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c)

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 paragraph 38-325(2)(a).

Reasons for decision

In this ruling,

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

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

•                     all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

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 proposed lots will be for consideration, the Purchaser of the proposed lots will be registered for GST and both you and the Purchaser have agreed in writing that the supply of the proposed lots 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.

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. You have provided an executed lease document for the proposed lots, hence, we are satisfied that you are conducting an enterprise of leasing.

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 the proposed lots

•                     you will supply to the Purchaser all of the things that are necessary for the continued operation of the enterprise.

•                     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 of the proposed lots will be a GST-free supply of a going concern.