Edited version of private advice

Authorisation Number: 1052328732349

Date of advice: 13 November 2024

Ruling

Subject: GST - sale of property

Question 1

Will the sale of land described in Certificate of Title and situated at XXXXX (the Property), by you, 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 (GST Act)?

Answer 1

Yes.

This ruling applies for the following periods:

Years ended 30 Jun 20XX to 30 Jun 20XX

The scheme commenced on:

XX XXX 20XX

Relevant facts and circumstances

The Scheme

The description of the scheme is based on information provided by you in the following documents, which are to be read in conjunction with the facts as set out below.

Applicant (you), has been registered under ABN XX XXX XXX XXX and registered for goods and services tax (GST) since XX XX XXXX.

Your primary business activity is property development.

You are part of the group of companies owned by XXX, a property investment and development business.

On XX XXX 20XX, you received transfer and became the registered proprietor of land situated at XXX and described in Certificate of Title (the Property).

You had been incorporated as an Australian company on XX XXX 20XX by the XXX property development group for the purposes of carrying on a property development enterprise, being the development of a master planned residential community on the Property (Development).

The Property is situated in XXX under the XX planning scheme administered by the XXX council area.

You have undertaken numerous activities for the purposes of undertaking the Development at the Property which are consistent with (and further to) a series of initial steps taken by Named Purchaser, which entity had previously purchased the Property, prior to nominating you to become its registered proprietor.

These pre-sale activities undertaken by you and by the Named Purchaser, were of a type that are generally required to carry on a successful residential development.

Certain related entities that are also part of the property development group undertook some of the development activities at the Property on your behalf, for reasons which included:

•                     property development group holding XX titles adjoining the Property, which are likewise being developed in tandem with the residential development at the Property, and

•                     to effect overall development cost reductions and economies of scale.

On XX XXX 20XX, you entered into a Contract of Sale (Contract) with the Purchaser to purchase the Property.

The Purchaser has been registered under ABN XX XXX XXX XXX and registered for GST since XX XXX XXXX.

The consideration to be paid for the Property is $XXXXX plus GST.

Nomination Deed

On XX XXX 20XX the Purchaser nominated Nominee trustee entity ACN XXX XXX XXX as trustee for the Nominee, as substitute purchaser to take transfer or conveyance of the Property, by way of a Nomination Deed (the Deed), subject to the provisions of the Deed.

The Nominee Trust has been registered under ABN XX XXX XXX XXX and registered for GST since XX XXX XXXX. However, the Nominee trustee who will hold the Property for the Trust, is not and has never been registered for GST.

The Deed (executed and delivered as a deed on XX XXX 20XX), provides that:

•                     the Nominee is jointly and severally liable with the Purchaser for

-        the due performance of the Purchaser's obligations under the Contract; and

-        payment of any expenses resulting from the nomination under the deed (including any duty).

•                     the Nominee indemnifies the Vendor from and against all loss and damage the Vendor may suffer or incur if

-        the Purchaser fails to comply with any of its obligations under the Contract and/or

-        the Nominee fails to comply with any of its obligations under the deed.

•                     the Nominee warrants that it will be registered for GST at the date of settlement of the Contract.

When the XX XXX 20XX Contract of Sale was entered into, you and the Purchaser agreed to undertake certain activities to facilitate the Development enterprise being carried on by you until settlement.

Settlement is scheduled for XX XXX 20XX or at some other date to be agreed between the parties.

Contract of Sale

Particulars of Sale to the Contract

The Particulars of Sale to the Contract (the Particulars) provide that you are the Vendor and that XXX is the Purchaser.

At the GST field where the Particulars provide that the price includes GST (if any) unless the words 'plus GST' appear in the box, the words 'plus GST' are recorded.

At the GST field where the Particulars provide that if the sale is of a 'farming business' or 'going concern' then the words 'farming business' or 'going concern' are to be added to the box, the words 'going concern' are recorded.

At the GST field where the Particulars provide that if the margin scheme will be used to calculate any GST payable, then the words 'margin scheme' are to be added to the box, the words 'margin scheme, if relevant Special Condition applies and subject to relevant Special Condition' are recorded.

General Conditions to the Contract

Relevant General Condition XX is deleted under relevant Special Condition XXX.

Relevant General Condition YY is deleted under relevant Special Condition YYY.

Special Conditions to the Contract

Special Condition YYY under the heading 'Amendments to General Conditions; provides:

Any common law right to nominate a substitute or additional transferee is expressly excluded from this contract. The purchaser may nominate a substitute or additional transferee under this general condition up until XX days before the settlement date, but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract.

A nomination may be made under this general condition provided that the purchaser delivers to the vendor's legal practitioner or conveyancer:

(a)           a nomination deed in the form attached to this Contract as [relevant schedule] executed by the nominee and the Purchaser;

(b)           if the nominee is a corporation to which [relevant General Condition] applies, a Guarantee which complies with the requirements of [relevant General Condition] but includes changes necessary by reason of the nomination;

(c)           a written acknowledgment from the guarantors that the nomination of the nominee does not vitiate the guarantors' obligations;

(d)           a written statement from the Purchaser and the nominee whereby the Purchaser and the nominee:

(i)            warrant to the vendor that:

(A)          the nominee is not obliged by the Takeovers Act to furnish notice to the Treasurer of its intention to acquire an interest in the Property; or

(B)          the nominee has prior to the date of the nomination deed obtained FIRB approval pursuant to the Takeovers Act for the acquisition of the Property and a copy of such approval is provided with the statement; and

(ii)           agree that if the warranty in [relevant General Condition] is breached, the Purchaser and the nominee must indemnify the vendor against any penalties, fines, legal costs, claims, losses or damages which the vendor suffers as a direct or indirect result of a breach of that warranty; and

(e)           payment by the nominee to the Vendor's legal practitioner or conveyancer for [relevant amount] plus GST in respect of the legal costs payable by the nominee under the nomination deed.

Special Condition XX Continuation of Development provides that the Vendor must carry on the enterprise which is the Development until settlement.

Special Condition XX Off-the-Plan Contracts provides that the Purchaser acknowledges that the Vendor has on the Day of Sale not yet entered into any Off-the-Plan Contracts, and that the Property is sold to the Purchaser subject to the Off-the-Plan Contracts in place at the time of settlement (if any).

Special Condition XX Development Agreements provides that to the extent that it is able to do so without the consent of any other person, upon settlement the Vendor assigns to the Purchaser the Vendor's rights and interest in the Development Agreements, and the Purchaser buys the Property subject to such Development Agreements.

Special Condition XX Development Documents provides that the Vendor will provide the Development Documents in its possession (either original or copies) to the Purchaser within XX Business Days following settlement, other than those previously provided or made available, including those forming part of the Due Diligence Material, and that to the extent it is able to do so, upon settlement the Vendor assigns to the Purchaser all of its intellectual property in the Development Documents, and the Purchaser accepts this assignment.

Special Condition XX GST provides at XX Supply of a going concern:

The Purchaser and the Vendor agree that this Contract provides for a GST-free supply of a going concern, being a development enterprise comprising the Development.

The Purchaser warrants that it is registered or required to be registered under the GST Law and will remain registered or required to be registered until the settlement.

The Purchaser acknowledges and agrees that:

(a)           the Vendor's ability to operate the development enterprise referred to in Special Condition XX may be deleteriously affected by the Purchaser unreasonably withholding or delaying its consent or approval when required by the Vendor in accordance with this Contract or otherwise not complying with this Contract; and

(b)           without limiting any other provision of this Contract, it will not exercise any Purchaser Rights if the supply of the Property under this Contract is not a GST-free supply of a going concern as a result of the matters described in Special Condition XX.

Subject to Special Condition XX, the Vendor warrants that it will until settlement carry out the development enterprise referred to in Special Condition XX.

Subject to Special Condition XX in the case of the supplier, the Vendor must take all reasonable steps to satisfy the conditions of section 38 - 325 of the GST Law to ensure the supply of the Property is a supply of a GST-free going concern, including that the supplier will supply to the recipient all things necessary for the continued operation of an enterprise.

Written agreement for a going concern

The parties have expressly agreed in writing under Special Condition XX of the Contract that the sale will be of a GST-free going concern under section 38-325 on the basis that the identified enterprise, that is, a continuing property development enterprise, will be supplied to the Purchaser.

You will supply to the Purchaser all of the things that are necessary for the continued operation of the property development enterprise. This will include:

•                     plans of subdivision

•                     functional layout plans

•                     engineering details designs

•                     tender schedules

•                     geotechnical reports

•                     service plans (including for electrical and communications services)

•                     urban design masterplans

•                     relevant and current valuations undertaken in connection with Development

•                     the transfer of all intellectual property rights in the Development Documents

•                     all outstanding 'Due Diligence Material' not already provided

•                     the assignation and transfer of all rights, title, and covenants under

-        any 'Off-the-Plan Contracts' in place at settlement (in accordance with those contracts), which novation the Purchaser accepts and

-        any 'Development Agreements' (with the Purchaser buying the Property subject to such Development Agreements)

•                     the transfer of the rights and responsibilities for any commission and sales expenses (including retainer fees and channel agent expenses) which are unpaid to sales agents for any Off-the-Plan Contracts

•                     development approvals with the Purchaser buying the Property subject to such development approvals

•                     the Planning Permit Application which will continue to run with the Property upon transfer, and

•                     copies of the Consultant Reports.

You will carry on the property development enterprise up to and until the day of supply, at settlement of the Contract.

The Contract further specifies that if Special Condition applies, such that the supply under the Contract is deemed by the Commissioner not to constitute a GST-free supply of a going concern, and subject to Special Condition, the margin scheme will then be used to calculate any GST that may be payable.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

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

Does Division 165 apply to this private ruling?

Unless your private ruling specifically discusses Division 165, we have not considered the application of the anti-avoidance provisions to your case.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for you.

This is to explain how we reached our decision. This is not part of the private ruling.

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise noted.

Issue

Property - GST-free going concern sale of property on which a Development Enterprise is being conducted.

Summary

For a supply to be a GST-free supply of a going concern all the requirements of section 38-325 must be satisfied. The facts indicate that these requirements will all be met in your case. Therefore, your supply of the Property will be GST-free under section 38-325.

Detailed reasoning

Taxable supply

Section 9-40 provides that 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 (Australia); 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.

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

In this case, you have entered into a Contract of Sale (Contract) to sell property situated at the Property.

There are no provisions in the GST Act under which your supply of the Property will be input taxed.

We will now consider whether your supply of the Property will be GST-free.

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

Going concern

Subdivision 38-J provides that, if certain conditions are satisfied, the '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 GST-free if it is supplied under an arrangement for the 'supply of a going concern'.

Specifically, section 38-325 of the GST Act provides as follows:

(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).

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.

Enterprise

Paragraphs 38-325(2)(a) and (b) require the conditions to be satisfied in relation to an 'identified enterprise'.

According to paragraph 29 of 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) this is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation.

Paragraph 9-20(1)(c) provides that an enterprise 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.

In your case, the 'identified enterprise', or the relevant enterprise within the definition of section 9-20(1)(c), is the activity of developing the Property as a master planned residential community. Online marketing, news articles and commentary published on the [relevant property development group] website, all demonstrate that the Development is ongoing.

Paragraphs 72-107 of GSTR 2002/5 discuss various components that may comprise 'all of the things necessary' for the continued operation of a business being sold under an arrangement. Paragraph 78 states:

78. The business, or operating structure and process of an enterprise is difficult to define and will always be a matter of fact and degree in a particular context. The structure and processes used by the supplier in the operation of the relevant enterprise must be supplied by the supplier to the recipient if the recipient is to be placed in a position to continue to operate the enterprise in the future. That is, the means of operation of the relevant enterprise must be supplied.

Paragraph 116 of GSTR 2002/5 explains, regarding intellectual property:

116. Where intellectual property exists and is one of the things that is necessary for the continued operation of the enterprise which is the subject of the arrangement, the benefit of the intellectual property must be supplied to the recipient under the arrangement.

In your case, you acquired the Property with the intention of undertaking a development project on the land. You started the required activities to develop the Property and advertised the sale as a Residential Development Site. You have provided the Purchaser with copies of all development applications, development approvals, plans, designs, schedules, assessments, reports, covenants, intellectual property, and other documents in connection with the Property in your possession, including the urban design masterplans for the residential estates.

For the above reasons, we consider that your supply under the arrangement will be a supply of a going concern under subsection 38-325(2).

Recipient of the supply

Finally, we need to consider whether the recipient is registered or required to be registered (paragraph 38-325(1)(b)) and therefore determine whether the supplier and the recipient have agreed in writing that the supplies are of a going concern (paragraph 38-325(1)(c)).

To address these issues, we need to identify which entity is the 'recipient' of the supply.

The term 'recipient' is defined in section 195-1 to mean the entity to which the supply was made. This definition suggests that there is a supplier, a recipient and that something is passed from the supplier to the recipient.

The Commissioner's views on supplies are provided in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). This ruling includes a number of propositions for characterising supplies and analysing more complex transactions.

Additionally, it includes discussion on supplies involving three or more parties and is relevant to characterising the arrangements in this case. In particular:

•                     Proposition 11 states that the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply.

•                     Proposition 13 states that when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

•                     Proposition 14 states that a third party may pay for a supply but not be the recipient of the supply.

•                     Proposition 16 states that the total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply.

In relation to tripartite arrangements, GSTR 2006/9 also provides the following:

Grandma's flowers

118. The scenario of Grandma's flowers illustrates some of the tripartite propositions.

A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother:

>

Proposition 11: the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

120. In Grandma's flowers there is no contractual relationship between A and C. Also, there is no contractual relationship between B and C. B simply provides flowers to C on A's behalf.

121. If you take a contractual approach in analysing the arrangement in Grandma's flowers, then the only contractual relationship is between A and B. Under this contract B makes a supply of flowers to A and consideration is paid by A to B. That supply is provided by B to C:

>

122. The analysis of Grandma's flowers raises the following propositions for identifying supplies in tripartite arrangements:

•                     transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods, services, or some other thing, do not establish a supply; and

•                     when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

...

Proposition 13: when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow)

130. In Grandma's flowers pursuant to the contract between A and B, B makes the supply to A but provides the flowers to C.

131. 'Made' in the context of 'a supply made' takes its meaning from the definition of 'recipient' in section 195-1:

recipient, in relation to a supply, means the entity to which the supply was made.

132. 'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

The rights of a nominee under a contract were examined by the Victorian Supreme Court in 428 Little Bourke Street Pty Ltd v Lonsdale Street Café Pty Ltd [2009] VSC 133 (428 Little Bourke Street Pty Ltd).

In his decision in this case, Judd J drew upon the prior decision of Nettle J in State Revenue v Politis [2004] VSC 126, quoting the statement by Nettle J at [25]:

...under most nomination clauses the nominee would not acquire any rights as against the vendor, let alone the rights of the purchaser; for most nomination clauses constitute no more than a power in the purchaser to require the vendor to complete the contract by transfer of the land to the purchaser's nominee. In such cases the purchaser has rights as against the vendor to have the land transferred to the purchaser or to the purchaser's nominee, at least upon payment of the purchase price.... [T]he nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract. And for the same reason, the nominee has no standing in equity to obtain an order for specific performance of the contract. He must sue in the name of the purchaser or join the purchaser as a defendant. Therefore, such if any interest as the nominee may have in the land is one which derives from the purchaser, and relevantly the most that can be said is that the nominee may acquire an interest in the land equivalent to that which the purchaser had or would have had under the contract of sale.

Judd J also referred to the reasoning of Phillips JA in Salter & Ors v Gilbertson & Ors [2003] VSCA 1, quoting Phillips JAat [26]:

Ordinarily, where there is an agreement of purchase and sale expressed to be between A (the seller) and B "or the nominee of" B, B is regarded as having the power simply to nominate who shall be transferee (that is, B or another at the direction of B) and a transfer to B and a transfer to B's nominee are alike regarded as in fulfilment of the contract between A and B...

In 428 Little Bourke Street Pty Ltd the nominee clause provided as follows:

If the contract says that the property is sold to a named purchaser 'and/or nominee' (or similar words) the named purchaser may, at least 14 days before settlement date, nominate a substitute or additional purchaser, but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract.

Judd J held that the nomination did not have the effect of a novation and the plaintiff (nominee) did not become a party to the contract of sale, finding at [35]:

35. The words - substitute or additional purchaser - are qualified by the words - but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract. These words confirm, in my view, the intention of the contracting parties that there is to be no change in the identity of the parties to the contract or their respective obligations.

In this case, you and the Purchaser entered into a Contract of Sale for the Property on XX XXX 20XX.

Special Condition to the Contract provides:

Any common law right to nominate a substitute or additional transferee is expressly excluded from this contract. The purchaser may nominate a substitute or additional transferee under this general condition up until [relevant number] days before the settlement date, but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract.

Through the Nomination Deed dated XX XXX 20XX, the Purchaser nominated Nominee trustee as trustee for Nominee trust (the Nominee), as substitute purchaser to take transfer or conveyance of the Property, subject to the provisions of the Deed.

Applying the principles of Proposition 13 in GSTR 2006/9 to this case, you will be making a supply of the Property to the Purchaser (contractual flow), while the actual supply of the Property will be provided to the Nominee (actual flow). Consequently, the recipient of the supply, being the entity to which the supply will be made, is the Purchasing entity.

Conclusion

In your case, as required by section 38-325(1):

•                     your supply of the Property is being made for consideration (being the stated purchase price in the Contract of Sale of $XXXXXX plus GST) and

•                     the Purchaser, is the recipient of the supply (with the nomination being a 'typical nomination'), has been registered for GST since XX XXX 20XX and will remain registered for GST as at settlement of the Contract and

•                     the parties have agreed in writing (pursuant to [relevant Special Condition] of the Contract) that the sale of the Property will be treated as the supply of a GST-free going concern, subject to the outcome of this application.

In relation to the requirements of section 38-325(2):

•                     you will supply to the Purchaser all of the things that are necessary for the continued operation of the identified enterprise, which is one of property development; and

•                     you will carry on that property development until the day of the supply, at settlement of the Contract.

Therefore, your supply of the Property to the Purchaser at settlement, will satisfy the criteria under sections 38-325(1) and 38-325(2). The supply will be one of a GST-free going concern.