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Edited version of private advice
Authorisation Number: 1052345126069
Date of advice: 11 March 2025
Ruling
Subject: GST - going concern
Question 1
Will the supply of property and the associated development enterprise being undertaken by Company A as trustee for Trust A to Company P pursuant to the Contract for Commercial Land and Buildings entered into by the parties on XX XXX XXXX (Contract of Sale) constitute 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 supply of the property is GST-free pursuant to section 38-325 as all requirements have been met.
This ruling applies for the following periods:
Year ending XX XXX XXXX
Year ending XX XXX XXXX
The scheme commences on:
XX XXX XXXX
Relevant facts and circumstances
Company A (ACN XXX XXX XXX) as trustee for Trust A (ABN XX XXX XXX XXX) is an Australian resident trust.
Company Ais the vendor, registered for GST since XX XXX XXXX and is a member of a GST group of which Company X (ABN XX XXX XXX XXX) is the representative. Company X is a residential property builder and developer, and indirectly owns Company B, an Australian resident company and Company A.
The land owned by Trust A (the Land A) is approximately XX hectares and is subject to this ruling.
Following are details of the Land A included in the Contract of Sale:
Table 1: Details of Land A included in the Contract of Sale
|
Address |
Present use (if any) |
Description |
Area |
|
XX XXX Road, XXXX, XXX XXXX |
Partial residential dwelling (not in a habitable condition), sheds/outbuildings and balance vacant land which may contain other minor improvements. |
Lot X on XXX in title reference XXX |
XX hectares |
|
XX XXX Road, XXXX, XXX XXXX |
Residential dwelling (not in a habitable condition), and associated outbuildings and improvements for this use. |
Lot XX on XXX (restricted) in title reference XXX |
XX hectares |
The land owned by Company B (the Land B) is contiguous to the Land A. Company B has a separate private ruling application regarding the sale of the Land B.
Company P (ACN XXX XXX XXX) (the Purchaser), is an Australian private company incorporated on XX XXX XXXX and has been registered for GST since its establishment.
There are several development approvals (DAs) which apply to the entire precinct, comprising of the Land B, Land A and other land owned by another Company X subsidiary including DAs for change of use and conditions.
Several DAs have been obtained in relation to the Land A.
The Land A and the Land B are included within the urban zone of the XX Urban Development Scheme.
The Land A and the Land B are included in the approved XX Context Plan which provides for the development of the XX Town Centre subject to several conditions.
Relevantly, the Land A and Land B have been approved for the following:
• residential,
• residential medium density,
• residential mixed use,
• retail core mixed use,
• commercial mixed use,
• major recreation park,
• transit centre,
• education mixed use.
An Environmental Protection and Biodiversity and Conservation (EPBC) application for XX residential development, XX, XX has been approved to clear approximately XX hectares of Koala habitat.
The Residential EPBC Approval affects:
• part of the Land A,
• part of Lot XXXX on the Land B,
• other land previously disposed of by Company A to Company Y as trustee for the Y Unit Trust and Company Z as trustee of the Z Partnership (Z) (collectively the Y and Z Land).
EPBC XXX has been lodged with the relevant statutory authority under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) over Lot XXX on XXX at XX Road, XX, XXX XXXX (XXX EPBC Referral), part of which now forms part of Lot X on XXX of the Land A.
After the disposal of the Land Y but prior to the disposal of the Land Z by Company A to Company Y and Company Z respectively, Company A obtained a couple of DAs to:
• reconfigure a Lot (X into XX Residential Lots), and material change of use for residential uses in accordance with a plan and development (with application number XX affecting part of the Land Z, and
• reconfigure a Lot (X into XX Management Lots and New Road,
• reconfigure a Lot (X Lots into a maximum of XX Lots, and DA for a material change of use (residential uses in accordance with a plan of development, application number XX) affecting the Land A, Land Y and the Land Z (the Z approval).
The above development applications also identify the proposed road network for several road and street intersections.
Rail Corridor
In accordance with the Context Plan (which covers the Land A, Land B and other land previously developed by Company X wholly owned subsidiary), a future rail corridor between XXX and XXX has been preserved within previous development applications (the Rail Corridor).
In XXX XXXX, after Company A and Company B worked with the relevant Council for the preparation of the Preliminary Business Case, the Rail Corridor was listed in the Infrastructure Priority List by Infrastructure Australia.
On XX XXX XXXX, the relevant State City Deal was signed by the Australian and State Government, and Council of Mayors, being a rolling funding agreement for a XX-year period.
As part of the State City Deal, $XX was committed to the XXX to XXX Public Transport Corridor Analysis to get the Rail Corridor to 'shovel-ready' status.
The $XX commitment under the State City Deal includes:
• $XX for the Analysis, and
• $XX for a detailed business case.
In XXX XXXX, the State City Deal Implementation Plan was released providing details of the commitment milestones and funding arrangements. Relevantly, the milestones for the analysis are as follows:
• QX XXXX - Preliminary Evaluation project plan agreed by the Australian and State Government, and the Council (subject to approvals),
• QX XXXX - engagement of consultants to support delivery of a preliminary evaluation, and
• QX XXXX - completion of the preliminary evaluation, including options analysis (subject to approvals).
As part of community engagement for the Rail Corridor (and the general development of the XX Area), Company A and Company B provided input to the Council and relevant Government. Notwithstanding, involvement of Company A and Company B in these community discussions have decreased as projects progress to the next milestones that require greater involvement of the Governments and the Council.
As at the date of this application, no further commitments or dedications have been made by the Australian and State Government, or the Council.
As the completion of the preliminary evaluation is a milestone of the State City Deal Implementation Plan, both Company A and Company B are awaiting the report to determine the highest and best use of the surrounding land of the XX Town Centre precinct pursuant to the Context Plan.
The next steps pending dedication/commitment of the Rail Corridor following the analysis and business case has resulted in a slowdown of further subdivision of the Land A. This includes a reduction in project management effort in respect of services to the land and development activities on the Land A and the Land B from five to two project managers, being employees of Company X.
Certainty of the specific land for the proposed transport corridor is required as any land subdivided prior to that being known is at risk of compulsory acquisition. This is a commercial decision for Company A as it may cause undue costs, time and effort for it, as well as be inconsistent with the Context Plan and previous development approvals that preserves land for the Rail Corridor.
Notwithstanding that Company A is awaiting the next steps for the dedication/commitment of the Rail Corridor before further subdivision occurs, this is in the ordinary nature of business as usual for Company A's enterprise. This is necessary to facilitate supplies within the enterprise of developing the XX Town Centre (which includes the Land A) for the following reasons:
• the Context Plan expressly contemplates the preservation or transfer of land to the Department of Transport of the State Government for the Rail Corridor, which is expected to be an investment in trade and enterprise for the State and accommodate a transport system for the sub-regions (including XX Area) in the State according to the State City Deal. As such, it is necessary to slow down some of Company A's activities to facilitate for the future Rail Corridor, which will in tum facilitate the development of the Land A in accordance with the Context Plan. If any further subdivision occurs while awaiting further dedication/commitment to the Rail Corridor, this may either be compulsorily acquired or impact the proposed pathway of the Rail Corridor;
• any temporary slowdown of Company A's activities as a result of pending critical interrelated milestones contemplated under the Context Plan or other related approvals, will be for a short period relative to the XX-year currency period for the development of the XX Town Centre precinct in accordance with the Context Plan.
Company A continues to utilise the services of two full-time project managers procured from Company X to manage the development of the Land A (jointly with the Land B).
Enterprise of Company A
Leasing enterprise
XX Tower Lease
Under the Contract of Sale, Lot X of the Land A is subject to the agreement for lease to Company XXX as trustee for the XXX Trust and the XX Tower Leases on settlement. Company A supplied novation of the agreement for lease encumbering Lot X in favour of Company XXX.
The leases to Company XXX will commence when Company A completes the earthworks to the Land A and Council accepts them. These earthworks were still being completed at settlement.
Activities that constitute the leasing enterprise and that were carried on up until settlement in accordance with the Context Plan included:
• the leasing land for the XX Tower Lease - the XX Tower Lease is for XX years until XX XXX XXXX. The XX Tower Lease will be replaced with the leases to Company XXX when they commence. Company XX and Company XXX are related parties; and
• the lease agreement to Company XXX - for X x X-year leases for a telecommunications purpose which, on commencement, will replace the XX Tower Lease. Commencement of the leases to Company XXX will be triggered by the completion and Council acceptance of earthworks that are being carried out by Company A on the Land A. The agreement for lease also requires Company A to complete construction of part of XXX Road;
• construction of earthworks to enable the mobile telecommunications tower leases to Company A to commence; and
• construction of part of XXX Road - this part of XXX Road adjoins the Company XXX premises on the Land A so as to grant Company XXX the road access to the Company A premises and to provide further public road access to the Land A in accordance with the approvals.
Land development
Company X, through its wholly owned subsidiaries Company A and Company B, has invested in the development of the XX Town Centre (which includes the Land A), which falls within the urban zone of the XX Valley Development Scheme, in accordance with the Context Plan.
Company A carries on the enterprise of land development on the Land A, in accordance with the Context Plan.
The currency period for the Context Plan is XX years from XXX XXXX, with the expectation (i.e. growth forecast) that ultimate population and development can be reached in a XX+ year horizon.
In accordance with the State Government 'XXX document', the Context Plan development area is expected to have ultimate development and population by XXXX.
The conditions of the Context Plan relevantly provide the following:
• carry out and complete the development generally in accordance with the Context Plan, Land Use and Zoning Plan, development permits, and other approved/endorsed documents (including master plans);
• submit for compliance assessment an interim public transport strategy and subsidise an early public transport (bus) service prior to the occupation of the XXth residential lot on the site;
• dedicate or transfer to the Department of Transport of the State Government, the land required to facilitate the provision of the future rail upgrade between XXX and XXX (being the Rail Corridor). This requires preserving the land for the proposed Rail Corridor in accordance with the Context Plan and other related approvals;
• dedicate or transfer to the State Government land required to facilitate the widening of XX Road;
• deliver an infrastructure master plan for:
- community facilities including:
o state primary and secondary schools,
o health precinct,
o district XXXX station, and
o XXXX station.
- local government facilities,
- energy and communication service,
- movement network,
- sewer infrastructure,
- water supply infrastructure,
- earthworks, and
- community greenspace.
• deliver overarching site strategies for total water cycle management, natural environment, ecological sustainability and innovation, community development, housing diversity and affordability, and employment and economic development.
Contract of Sale
The material terms of the Contract of Sale for the Land A are as follows:
• On XX XXX XXXX, Company A and the Purchaser entered into a Contract of Sale of the Land A for a consideration of $XX. (excluding GST). The settlement date was scheduled on XX XXX XXXX, and settled on XX XXX XXXX;
• Lot X of the Land A was sold to the Purchaser subject to the agreement for lease to Company XXX and the XX Tower Leases on settlement;
• Company A and the Purchaser agreed in writing that the sale of the Land A is a supply of a going concern;
• as part of the sale of the Land A, Company A will transfer the EPBC Approval, including all conditions and any variations to that approval, to the Purchaser post-settlement;
• the Purchaser agrees in favour of the cultural heritage parties to be bound to the cultural heritage management plans in relation to the Land A and those agreements were novated to the Purchaser at settlement to the extent they apply to the Land A;
• the Purchaser took a novation of the agreement with X Limited in relation to installation of an utility infrastructure on the Land A after settlement;
• Company A has assigned, effective on settlement, certain rights given by Company Y and Company Z under the sale contracts with them in relation to the Residential EPBC Approval and New XX Road EPBC Referral. Once the Residential EPBC Approval and New XX Road EPBC Referral are transferred to the Purchaser, Company A will assign further rights to the Purchaser under those contracts;
• once the Residential EPBC Approval and XXX EPBC Referral are transferred to the Purchaser, Company A will novate the Transfer Covenant it has entered with Company Y and Company XXX in relation to the Residential EPBC Approval. This will occur post settlement. As at the contract date, Company A had entered an access and works deed with Company YYY as trustee for the YYY Estate Development Partnership (YYY Development) and Company Z as trustee of the Z Partnership (the Access and Works Deed) in relation to the Land A. The Access and Works Deed was novated to the Purchaser on settlement. The Access and Works Deed provides for YYY Development to undertake the following on the Land A:
- clearing of vegetation;
- demolition and service relocation;
- construction of roads in accordance with the Z Approval. A diagram of the roads to be constructed by Company Z on the Land A was provided.
- orderly development of the land to meet the conditions of the relevant development approvals defined in Special Conditions of the Contract of Sale.
The Contract of Sale states that if the New XX Road EPBC Referral was not approved by the relevant Authority prior to the Settlement Date and remained in application stage at settlement, the parties will seek to change the proponent under the application from Company A to the Purchaser after settlement.
Effective from settlement, Company A licences to the Purchaser any intellectual property rights or licences, actually held by Company A, to use plans, drawings, approvals, permits, agreements, applications, documents, reports or the link which relate to, pertain to or form part of the Residential EPBC Approval and New XX Road EPBC Referral. To the extent they are not owned or licenced by Company A, Company A procured such licences from the relevant related body corporate being Company B.
GST
GST is contained in Special Conditions under the Contract of Sale.
Going concern supply in Special Conditions Contract of Sale provides that if the Supply is a Going Concern:
• the Purchase Price does not include any amounts for GST;
• the parties agree the Supply of the Property is a Supply (or part of a Supply) of a Going Concern;
• the Seller warrants that:
- between the Contract Date and the Settlement Date the Seller will carry on the Enterprise; and
- the Property (together with any other things that must be provided by the Seller to the Buyer at the Settlement Date under a related agreement for the same Supply) is all of the things necessary for the continued operation of the Enterprise;
• the Buyer warrants that at the Settlement Date it is Registered or Required to be Registered under the GST Act.
Clause XX Supply of going concern - that part of the Land containing the Leases provides that:
• the parties agree that the sale of that part of the Land containing the Leases is the supply of a going concern for the purposes of subdivision 38-J pf the GST Act and that that supply is 'GST free' for the purposes of the GST Act.
• the Buyer warrants that it will be registered for GST under Part 2.5 of the GST Act on the Settlement Date and will continue to be so at all relevant times up to Settlement of this contract.
• the Seller warrants that it:
- will supply to the Buyer all of the things that are necessary for the continued operation of the Leasing Enterprise until Settlement; and
- carry on the Leasing Enterprise and will carry on the Leasing Enterprise until Settlement.
Clause XX Supply of going concern - the Property excluding that part of the Land containing the Leases provides that:
• The parties agree that the sale of the Property (excluding that part of the Land containing the Leases) is the supply of a going concern for the purposes of subdivision 38-J pf the GST Act and that that supply is 'GST free' for the purposes of the GST Law.
• The Buyer warrants that it will be registered for GST under Part 2.5 of the GST Act on the Settlement Date and will continue to be so at all relevant times up to Settlement of this contract.
• The Seller warrants that it:
- will supply to the Buyer all of the things that are necessary for the continued operation of the Development Enterprise; and
- carried on the Development Enterprise and will carry on the Development Enterprise until Settlement.
Broadly, Company A has been actively undertaking the following activities in relation to the Land A (and in relation to land from which the Land A was created):
• preserving land for the proposed Rail Corridor in accordance with the Context Plan and other related approvals;
• following subdivision by Company A to create a site to be transferred to the State XXX Service for a new XXXX station adjoining the Land A, using the Land A to assist with the completion of the works required to have the XXXX station site ready to be transferred to the State XXXX Service free of charge and as part of the approvals for the development of the land owned by Company A (and as of the date of the private ruling application, it is under construction and nearing completion). The new XXXX station was not situated on the Land A and was not part of the sale;
• entering into an agreement with XX Limited in relation to installation of the utility infrastructure on the Land A;
• clearing vegetation on Lot X with approximately X hectares cleared to date. The clearing of the vegetation is in accordance with the Residential EPBC Approval conditions and is part of the master plan for the residential development of the Land A;
• applying for and progressing the New XX Road EPBC Referral for the clearing and development of an area for the construction of a residential development. As at the date of this private ruling application, the application is still being assessed;
• agreeing to resumptions of Land A for the widening of XX Road in accordance with development approvals for the Land A;
• negotiating heads of agreement for an additional offset agreement for offsetting clearing of habitat in contemplation of the acceptance of the application for the variation of the Residential EBPC Approval;
• currently completing construction of part of XXX Road pursuant to the Z Approval. This part of XXX Road adjoins the Company XXX premises on the Land A to grant Company XXX road access to the Company XXX premises and to provide further public road access to the Land A in accordance with the approvals. The part of XXX Road that is being constructed was dedicated as public road before settlement from part of land owned by Company A (which was dedicated as part of a subdivision of land owned by Company A which created the Land A, the existing part of XXX Road and the XXX station site). Completion of the relevant part of the XXX Road works is expected on or about XXX to XX XXXX. Under the Contract of Sale after settlement, the Purchaser grants Company A, a licence over part of the Land A to complete these works and maintain these works up to the specified period after they have been completed;
• Company A has no employees. Company A has procured that Company X provides project management services to it to enable the day-to-day management of the enterprise subject to direction from Company A to manage the development of the XX Town Centre (including on the Land A).
Notwithstanding that the following activities and developments have not been undertaken on the Land A, they are being or have been undertaken either on the Land B or land contiguous to the Land A (which has been subdivided off land owned by Company A from which the Land A was also created from), which are contemplated under the Context Plan or otherwise required for its development and use:
• applying for and progressing various development permits in relation to the Land B, in accordance with the Context Plan;
• subdivision of land by Company A to create a site to be transferred to the State XXXX Service free of charge for a new XXXX station adjoining the Land A as is required by the development approvals which affect the Land A and as contemplated by the Context Plan. At the date of the private ruling application, it is owned by Company A and is under construction by Company A (as well as part of XXX Road to provide the XXXX station site direct road access) and nearing completion that should be completed on or about XXX to XXX XXXX;
• commencement of the construction of XXX Road adjoining the XXXX station site and the Land A to connect such public road access to the XXXX station site and the Land A pursuant to the Z Approval (and as of the date of the private ruling application, it is under construction and nearing completion that should be completed on or about XXX to XXX XXXX. In this respect, under the Contract of Sale, a licence has been granted by the Purchaser to Company A to remain on Lot X after settlement for up to a certain time for Company A to complete these works (which are currently under construction) and complete their maintenance for the prescribed period;
• subdividing, developing and selling residential and commercial land and house and land to purchasers by Company B to the extent that there is no current stock of subdivided land to be sold;
• construction, development and leasing of stage 1 of the shopping centre located on Lot XXX of the Land B (the Shopping Centre) by Company B;
• applying for and obtaining a development approval to construct and develop stage 2 of the retail development of the Shopping Centre by Company B (Stage 2 Retail);
• entering into commercial discussions and agreements for the leasing of premises as part of Stage 2 Retail, including an agreement for lease with XX, a heads of agreement with XXX and heads of agreement for a XXX;
• undertaken building works associated with the establishment of a temporary community centre on Lot XXX of the Land B, pursuant to development approval XX and licensing its use;
• construction of XX Street on the Land B for access from XX Road to the Shopping Centre and the Community Centre;
• removal of a cattle dip from Lot XXXX of the Land B, remediation of contamination from the site and removal of Lot XXXX from the Environmental Management Register;
• entered into an agreement with XX Limited in relation to installation of the utility infrastructure on the Land B;
• entered a cultural heritage management plan with the cultural heritage party for the Land B to enable its development;
• agreeing to resumptions of the Land B for the widening of XX Road in accordance with development approvals for the Land B;
• applied for an obtained exemption approval (not a controlled action) pursuant to the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (reference number XXX) to clear vegetation;
• granting a licence over Lot XXXX and Lot XXX of the Land B to XX Ltd to use part of those lots for weekly parkrun events.
Completed activities
Leasing enterprise
Company A has completed the following activities in relation to the leasing enterprise:
• entered into leases for a telecommunications tower pursuant to development permit XX. This is being leased to XX for a XX Tower Lease;
• entered into an agreement for lease with Company XXX; and
• construction of earthworks have recently been completed and are awaiting acceptance by the Council;
• completed the construction of part of XXX Road in XXX/XXX XXXX.
Land development enterprise
Company A has completed the following activities in relation to the land development enterprise:
• demolition of the partial residential dwelling (not in a habitable condition) on Lot X to enable the construction works to as per the next dot point to occur;
• entered into a binding agreement for Z to complete construction of X Street, XX Street and the remainder of XXX Road on the Land A as part of the arrangement for the sale of the land to Z, which include step-in rights for Company A to complete these roads, being the Access and Works Deed;
• applied for and obtained approval of the Residential EPBC Approval in relation to parts Lot X on the Land A;
• Applied for a variation to the Residential EPBC Approval to allow for an increase to the XX hectare clearing limit to allow for clearing on other land owned by Company A and other parties, however, this has been denied on the basis that the relevant authority requires a fresh application rather than a variation application;
• engaged with consultants to conduct detailed site surveys to support a variation of the Residential
EPBC Approval to allow for an increase to the clearing limit following the classification of Koalas from vulnerable to endangered. As per above, this work will now be used to support a new application instead;
• entered into an agreement with XX Limited in relation to installation of the utility infrastructure on the Land A;
• applied for the New XX Road EPBC Referral;
• entered cultural heritage management plans with the cultural heritage parties for the Land A to enable its development;
• entered into an offset agreement for offsetting clearing of habitat as required by the Residential EBPC Approval;
• applied for several development applications and obtaining development approvals;
• provided discussion and input in relation to the Rail Corridor and the general development of the XX Valley.
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 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
A New Tax System (Goods and Services Tax) Act 1999 section 9-17
A New Tax System (Goods and Services Tax) Act 1999 section 9-20
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