Edited version of private advice

Authorisation Number: 1052397972473

Date of advice: 23 May 2025

Ruling

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

Question 1

Is the supply of the Properties A, on settlement of the Contract of Sale, 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 Properties A is a GST-free supply of a going concern under section 38-325 of the GST Act.

Question 2

Is the supply of the Property B, on settlement of the Contract of Sale, a mixed supply of the following:

   (a) a GST-free supply of a going concern of the Leased Area under section 38-325 of the GST Act, and

   (b) an input taxed supply of residential premises of the Residence Area under section 40-65 of the GST Act?

Answer

Yes. The supply of the Property B is a mixed supply of the following:

   (a) Leased Area is a GST-free supply of a going concern under section 38-325 of the GST Act, and

   (b) Residence Area is an input taxed supply under section 40-65 of the GST Act.

Relevant facts and circumstances

Entity A is registered for GST.

Entity B is registered for GST and is the registered proprietor of Properties A and Property B.

Entity B entered contracts of sale for Properties A and Property B with Entity A.

Entity B and Entity A are unrelated parties and both the contracts of sale were negotiated on an arm's length basis.

Under the Contract of Sale for the Properties A, both parties agreed on the consideration payable and on the settlement date. In addition, both parties agreed that the supply of the Properties A, which were leased will be a supply of a going concern of a leasing enterprise. The settlement period for the contracts of sale were within the lease period.

Under the Contract of Sale for Property B, both parties agreed on the consideration payable and on the settlement date. In addition, both parties agreed that the supply of the Property B, which were leased to two different tenants will be a supply of a going concern of a leasing enterprise to the extent of the farm land and excluding the residential premises with its curtilage.

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 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

Reasons for decision

Detailed reasoning

All legislative references are to the GST Act unless otherwise stated.

Going concern

Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free.

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 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 being carried on by the supplier).

Goods and Services Taxation Ruling GSTR 2002/5 Goods and services tax: when is a supply of a going concern GST-free? (GSTR 2002/5) discusses elements of the supply of a going concern for the purposes of section 38-325.

Paragraph 29 of GSTR 2002/5 requires the identification of an enterprise that is being carried on by the supplier (the identified enterprise). This is the enterprise for which the supplier must supply all the things necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as a part of a larger enterprise.

All things necessary

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 thing in the absence of the thing.

Paragraph 107A of GSTR 2002/5 provides that 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).

Continued operation

Paragraph 149 of GSTR 2002/5 provides that the term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise.

Agreed in writing

Paragraph 38-325(1)(c) states that the supplier and the recipient of the supply must have agreed in writing that the supply is of a going concern.

Paragraphs 178,179 and 181 to 185 of GSTR 2002/5 provides clarification on what 'agreed in writing' entails.

The written agreement need not form part of the arrangement under which the supply of a going concern is made. The important thing is that 'the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a supply of a going concern'.

The supplier and the recipient must agree that the supply is a 'supply of a going concern' on or before the day of the supply.

Recipient is registered or required to be registered

Paragraph 38-325(1)(b) requires that the recipient of the supply of a going concern is registered or required to be registered for GST.

Paragraph 186 of GSTR 2002/5 states that a recipient that is required to be registered in respect of the enterprise on and from the date of the supply, will satisfy the requirement in paragraph 38-325(1)(b). If the recipient is not required to be registered but chooses to register to obtain the benefit of the provision, the mere lodging of an application to be registered will not satisfy the requirements of paragraph 38-325(1)(b). The effective date of registration of the recipient must be on or before the day of supply.

Sale of residential premises

Section 40-65 provides that the sale of residential premises is input taxed except where the premises is commercial residential premises (which is not relevant in this case) or new residential premises.

Subsection 40-75(1) provides that 'residential premises' are 'new residential premises' if they:

   (a) have not previously been sold as residential premises

   (b) have been created through substantial renovation of a building, or

   (c) have been built, or contains a building that has been built, to replace demolished premises on the same land.

However, subsection 40-75(2) provides that residential premises are not new residential premises if, for a period of at least 5 years, since the premises first became residential premises, the premises were last substantially renovated or the premises were last built, the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).

Paragraph 40-35(1)(a) provides that the supply of residential premises (other than a supply of commercial residential premises) by way of lease, hire or licence is input taxed.

Question 1 - sale of the Properties A conclusion

The supply of the Properties A satisfies all the requirements of section 38-325. That is,

   (1) the sale is for consideration

   (2) the recipient, Entity A, is registered for GST

   (3) Entity A and Entity B had agreed in their contract of sale that the sale is a supply of a going concern

   (4) the sale is subject to the Properties A Lease, and

   (5) Entity B will carry on their leasing enterprise until the settlement date.

Therefore, in making the sale of the Properties A, the supplier has provided all things necessary for the continuation of the identified leasing enterprise and they are making a GST-free supply of a going concern under section 38-325 as all the conditions of that provision are met.

Question 2 - sale of the Property B conclusion

The Property B is comprised of the Leased Area and the Residence Area.

Leased Area

To the extent of the Leased Area, the sale is a GST-free supply of a going concern as all the requirements of section 38-325 are satisfied. That is,

   (1) the sale is for consideration

   (2) the recipient, Entity A, is registered for GST

   (3) Entity B and Entity A had agreed in their contract of sale, to the extent of the Leased Area, the sale is a supply of a going concern

   (4) the sale is subject to the Leased Area Lease, and

   (5) Entity B will carry on the leasing enterprise until the settlement date.

Residence Area

The Residence Area contains residential premises which is leased to the Residence Tenant.

The Residence Area has an existing house and its curtilage and was already in existence when Entity B acquired it.

To the extent of the sale of the residential premises of the Residence Area, the sale is an input taxed supply under section 40-65 as the residential premises is not new residential premises.