Edited version of private advice

Authorisation Number: 1052215825524

Date of advice: 25 January 2024

Ruling

Subject: GST - sale of a going concern

Question

Is the sale of xxxx (Property) by the xxx and xxxx and xxxx (Receivers) in their capacity as receivers on behalf of xxxx (Owner) to xxxx (Purchaser) 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, the sale meets the requirements under section 38-325 of the GST Act to be considered a GST-free supply of a sale of a going concern.

This ruling applies for the following periods:

xx January xxxx to 30 June xxxx

The scheme commenced on:

xx November xxxx

Relevant facts and circumstances

The Owner previously owned the Property. they entered into a contract XXXX (Contract Date) to sell the Property to the Purchaser. The details of the contract are as follows:

•         The sale price was XXXX (as varied).

•         The settlement Date was stated to be on or before XXXX (as varied).

•         The GST Annexure was attached to the Contract and the Going Concern choice elected. The Going

Concern choice provides as follows:

a)    The Buyer and the Seller agree that the sale of the Property in this Contract is the supply of a Going Concern and is GST-free.

b)    The Seller agrees that it will carry on and conduct the enterprise as a Going Concern until the date that settlement of this Contract actually occurs.

c)    The Seller agrees to supply at Settlement all the things required for the continued operation of an enterprise as a Going Concern.

d)    The Seller and the Buyer agree that the supply is GST-free and the Purchase Price is exclusive of GST.

e)    If for any reason this sale is not accepted by the Commissioner of Taxation as GST-free for the supply of a going concern them:

i.      The Buyer agrees to pay to the Seller, the amount of GST, within 30 days after the Seller's liability for GST on this sale is confirmed by the Commissioner of Taxation.

ii.      The Seller will provide to the Buyer a Tax Invoice.

f)    The Buyer represents that at Settlement; the Buyer will be registered for GST.

•         Both parties signed the Going Concern choice in the GST Annexure to the Contract.

•         The Contract provides that the General Conditions form part of the contract. Clause 18 of these conditions deal with GST, however, they do not impact on the going concern treatment of the sale of the Property.

•         There were no special conditions relating to GST attached to the Contract.

The Owner has been registered for GST since XXXX and remains registered for GST as at the date of the ruling application. The Receivers have registered for GST in their capacity as receivers of the Owner and have been assigned a CAC number xxx under the Owner's ABN. The Purchaser has been registered for GST since XXXX and remains registered as at the date the ruling application.

The Property comprises a commercial property with an area of XXXX sqm. It has a Net Lettable Area of XXXX sqm divided into two tenancies. Part of the Property has been continuously occupied by XXXX since XXXX, whilst the balance had previously been leased to XXXX (who had vacated prior to the contract and sale) but has since been leased to XXXX from the date of settlement. The site also contained xx car bays.

On XXXX, the Federal Court of Australia ordered that Receiver) be appointed joint and several receivers of the Property of the Owner without security. Among other things, the orders provide that the purpose of the appointment of the Receivers to the Property is on behalf of and in the interests of the Owner to do all things necessary to complete the sale of the Property on or before XXXX pursuant to the Contract entered into on XXXX.

The Receivers proceeded with the settlement of the Property on or about XXXX.

On settlement, the Property was partly tenanted, as follows:

•         Unit x was leased to XXXX. The lease has a period of 10 years, which commenced in XXXX and was stated to end in XXXX

•         xx car bays were leased to XXXX.

Unit x was vacant on settlement. It has a net lettable area of XXXX sqm.

The variations to the Contract referred to above are as follows:

•         The parties agreed to a new settlement date for the sale

•         The Owner is required to remove the registered lease XXXX from the title (being the terminated lease to XXXX)

•         The Owner, Purchaser and tenant are required to enter into the Purchaser's Deed (related to the registered lease XXXX to XXXX). This deed provides that the Purchaser is bound by the covenants under the existing lease

•         The Parties acknowledged and agreed that the Property was sold subject to Lease XXXX (and the registered variations thereto). The Property was sold subject to the lease to XXXX.

Unit x was marketed for lease by the Owner and the Receivers from prior to the Owner entering into the Contract on XXXX. XXXX were appointed to lease Unit x from XXXX.

During the period from XXXX until settlement, the Property was being offered for lease to multiple parties through an off-market campaign, primarily involving database marketing and direct presentations. XXXX made dozens of calls and sent numerous emails to prospective tenants. These marketing activities were carried on until settlement.

Three prospective tenants inspected the Property for the period from XXXX until settlement, including XXXX.

It is understood that an agreement to lease for the vacant part of the Property was entered into shortly before settlement by XXXX. This was negotiated between the Purchaser and XXXX.

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

Reasons for decision

Section 9-40 provide that you are liable for GST on any taxable supplies that you make. Under section 9-5, you make a taxable supply if:

a)  You make the supply for consideration;

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

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

d)  You are registered or required to be registered for GST

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

* denotes a defined term under section 195-1.

Subsection 38-325(1) of the GST Act notes 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

Subsection 38-325(2) of the GST Act notes that 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)

The property was sold by the Receivers in their capacity as receivers of the Owner. Accordingly, the special GST rules dealing with receivers and other representatives in Division 58 of the GST Act apply. Relevantly:

•         Any supply by an entity in the capacity of a representative of an incapacitated entity is taken to be a supply by the incapacitated entity (section 58-5(1))

•         A representative of an incapacitated entity is liable to pay any GST that the incapacitated entity would be liable to pay on a taxable supply to the extent that the making of the supply to which GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs (section 58-10(1))

•         A representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered (section 58-20)

Under the Federal Court orders outlined in the relevant facts, the Receivers were appointed to do all things necessary to complete the sale of the Property. Accordingly, the sale is within the scope of the Receivers responsibility or authority for managing the Owner's affairs and Division 58 of the GST Act applies to the sale of the Property.

Paragraph 217 of GSTR 2002/5 'Goods and services tax: when is a 'supply of a going concern' GST-free?' (GSTR 2002/5) states:

(Note: if the receiver sells the property in its capacity as receiver of an incapacitated entity, the receiver is the supplier. Liability for GST would rest with the receiver under Division 58 and Division 105 would not apply. That being the case, the receiver has to satisfy the section 38-325 requirements in his own capacity.)

Accordingly, we need to consider whether the sale of the Property satisfies the GST-free going concern requirements in section 38-325. In this respect:

•         The sale of the property is made for consideration (being the sale price)

•         The Owner and the Purchaser agreed that the sale of Property is the supply of a going concern for the purposes of section 38-325 per the GST annexure to the Contract

•         The Purchaser was registered for GST on settlement.

The three limbs under subsection 38-325(1) of the GST Act are therefore met.

Enterprise

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, 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 (paragraph 9-20(1)(c)).

Section 195-1 states that the phrase 'carrying on' in the context of 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.

Paragraph 21 of GSTR 2002/5 indicates that subsection 38-325(2) of the GST Act requires the conditions to be satisfied in relation to an 'identified enterprise'.

Paragraph 107A of GSTR 2002/5 also states:

107A. 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 consists solely of leasing a property, management and services contracts related to the lease are not things necessary for the continued operation of that enterprise. That is, 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).

Accordingly, the lease of the Property by the Owner to the tenants constitutes a leasing enterprise under section 9-20(1)(c) of the GST Act, being an activity done on a regular or continuous basis, in the form of a lease. Paragraph 107A confirms that the supply by the vendor of a property subject to an existing lease to the tenant is all that is required to satisfy paragraph 38-325(2)(a).

Paragraph 152 of GSTR 2002/5 provides an example of whether a partly tenanted building satisfies as the carrying on of an enterprise:

Example 24: partly tenanted building

152. The Bullish Unit Trust enters into a contract to sell a large commercial building which it has leased out for several years. At the time of sale, the building has only one tenant which occupies a part of the available floor space. The balance of the floor space is available for lease and the trust has engaged a leasing agent to find tenants for the remaining area. The trust is carrying on an enterprise of leasing the building as it is carrying on leasing activities on a regular or continuous basis.

The Owner actively marketed the Property for lease to prospective tenants for the period up to settlement. The Owner appointed by XXXX to lease the Property from XXXX.

During this period, the Property was being offered for lease to multiple parties through an off-market campaign, primarily involving database marketing and direct presentations. XXXX made dozens of calls and sent numerous emails to prospective tenants. Three prospective tenants inspected the Property for the period from XXXX until settlement.

This is the same scenario as described in example 24 above. Just as in the example, up to settlement, the Owner leased part of the Property to the tenants and the balance of the floor space in the Property was available for lease. The Owner had engaged XXXX to find tenants for the remaining area. On this basis, the Owner carried on an enterprise of leasing the Property up to settlement.

The Owner and the Receivers (from the date of their appointment) therefore carried on an enterprise of leasing the Property up to settlement. The sale of the Property hence satisfied the requirements of 38-325(2).

The sale of the Property therefore satisfies all the requirements under section 38-325 of the GST Act to be a GST-free sale of a going concern.