Private ruling: GST and sale of property as a going concern
Published: September 2014

Ruling: Q2: Where the supply is not a GST-free supply of a going concern, are you required to pay GST, if the vendor is not and does not intend to be registered for GST? Decision 2 If the vendor of the property is not required to be registered for GST, there is no GST payable on the sale of the property even though the sale is not a GST-free supply of a going concern.

Relevant facts and circumstances: • On Date A, you entered into a contract with a vendor to purchase a commercial property for a purchase price of $X. The contract is due for settlement on Date B. • You have been leasing the property from the vendor for a number of years to operate your restaurant enterprise and are still occupying the property until settlement on a month to month lease. • You will purchase the property with the intention of occupying the property yourself. • As per the contract of sale of property (contract), you and the vendor have agreed in writing that the sale of the property is a supply of a going concern. • The vendor has never been registered for goods and services tax (GST) and does not intend to be registered for GST. • As per our records, you are registered for GST effective from 1 July 2000.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - section 38-325 Reasons for the decisions | Decision 1 | Supply of a going concern | Subsection 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that: | (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). | (terms marked with asterisks (*) are defined in section 195-1 of the GST Act). Identified enterprise | Paragraphs 38-325(2)(a) and (b) of the GST Act require the conditions to be satisfied in relation to an 'identified enterprise'. In regards to this, paragraph 29 of Goods and Services Tax Ruling, Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) states: 29. Subsection 38-325(2) 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 of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise. | We accept that the vendor carried on an enterprise of leasing the property to you under a month to month commercial lease. It is the identified enterprise. | The next issue to determine as stated in paragraph 38-325(2)(a) of the GST Act is whether the vendor has supplied to you everything that is necessary for the continued operation of the leasing enterprise. All of the things that are necessary for the continued operation of the identified enterprise | Paragraph 108 of GSTR 2002/5 reads as follows: | Supply by a lessor of the benefits of covenants under a lease | 108. The owner of an enterprise which consists solely of the leasing of property cannot make a 'supply of a going concern' when supplying the real property subject to the lease to the lessee. All of the things that are necessary for the continued operation of the enterprise includes the supply of the property and the covenants. The owner is not able to supply to the lessee the benefit of the covenants which are necessary for the continued operation of the existing enterprise of leasing the property. | Accordingly, the owner of a leasing enterprise is not able to supply the benefit of the covenants to a tenant which are necessary for the continued operation of the existing enterprise of leasing where the tenant purchases the property from the owner. As such, the vendor cannot supply all of the things that are necessary for the continued operation of the leasing enterprise to you. | A supply will be a GST-free supply of a going concern, when all of the requirements in section 38-325 of the GST Act are satisfied. | As the supply of property to you does not meet subsection 38-325(2) of the GST Act, the supply of the property to you is not a supply of a going concern. Therefore the supply is not a GST-free supply. | Decision 2 | GST is payable on taxable supplies. Section 9-5 of the GST Act provides: 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 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 supply of the property meets paragraph 9-5(a) to (c) of the GST Act. The issue here is determining whether the supply meets paragraph 9-5(d) of the GST Act. You have advised us that the vendor is not registered for GST and does not intend to be registered for GST. However, it is necessary to determine whether the vendor will be required to be registered for GST at settlement. When is an entity required to be registered for GST? | Section 23-5 of the GST Act provides the following: | You are required to be registered under this Act if: (a) you are *carrying on an *enterprise; and | (b) your *GST turnover meets the *registration turnover threshold. | With the available information, we cannot determine whether the vendor will be required to be registered for GST at settlement. It is the responsibility of the vendor to determine whether the vendor is required to be registered. | If the vendor is not required to be registered at settlement, then paragraph 9-5(d) of the GST Act will not be satisfied and the sale of the property to you will not be a taxable supply. The vendor will not incur a GST liability and the sale price will be exclusive of GST. | If the vendor is required to be registered at settlement, paragraph 9-5(d) of the GST Act will be satisfied and the sale of the property will be a taxable supply. In that situation, the vendor will incur a GST liability equal to 10% of the value of the property which they may pass on to you, the purchaser, by way of including the relevant amount in the price they charge you for the property.


Question 1: Will the supply of the commercial property to you be a GST-free supply of a going concern? | No, the supply of the above property will not be a GST-free supply of a going concern.