Private ruling: Supply of a going concern
Date of advice: 3 August 2015
Published: August 2015

Ruling: Q1: For the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) will the supply of the Property by the Vendor to a purchaser pursuant to the Agreement be the supply of a going concern which is GST-free? | A1: Yes, the supply of the Property by the Vendor to a purchaser pursuant to the Agreement will be the supply of a going concern which is GST-free for the purposes of section 38-325 of the GST Act, except to the extent that the Vendor has not entered into an agreement to lease in respect of certain parts of the Property by the settlement date. Apportionment will be required.

Relevant facts and circumstances: The Vendor's adviser provided a draft Agreement which states that the Vendor agrees to sell a number of properties (including the Property) for the Purchase Price on the terms and conditions set out in the Agreement. Those terms and conditions include that the sale of the properties is subject to all leases, subleases and licences in respect of the properties and the Vendor's rights and obligations under the relevant services, maintenance and operation agreements for the properties. The draft Agreement requires the Vendor to continue to manage the properties and leases after the date of the Agreement and states that at settlement the Vendor must assign to or novate in favour of the buyer the Vendor's interest in each of the leases etc. and services, operation and maintenance agreements. The draft Agreement also states: (a) The parties agree that the sale of the Properties under this Agreement is the supply of a going concern within the meaning of subdivision 38-J of the GST Act and is 'GST-free' for the purposes of the GST Act. (b) The Buyer warrants that it is registered or required to be registered for GST under Part 2.5 of the GST Act and will continue to be so at all relevant times up to the date of Settlement, (c) Subject to the other provisions of this Agreement the Seller: (i) Will carry on the enterprise conducted by the Seller on and in connection with the Properties until the Settlement Date; and (ii) Will supply all things that comprise and are necessary for the continued operation of the enterprise conducted by the Seller on and in connection with the Properties. Assumptions For the purposes of subsection 357-110(1) in Schedule 1 to the Taxation Administration Act 1953 (TAA), we consider that the correctness of this ruling depends upon which assumptions are made about a future event or other matter. Consequently we consider it appropriate to make the following assumptions: • The Vendor signs an agreement to lease in respect of certain parts of the Property on or before settlement of the sale of the Property pursuant to the Agreement; • the Agreement executed by the Vendor and the purchaser is not materially different to the Agreement supplied with the ruling request; • the Vendor will carry on the enterprise until the day of the supply for the purposes of paragraph 38-325(2)(b) of the GST Act; and • the purchaser is registered for GST or required to be registered for GST as at the day of the supply.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 , section 38-325

Reasons for decision: Summary: The sale of the Property (either alone or together with other properties) by the Vendor pursuant to the Agreement will be a supply under an arrangement for the purposes of subsection 38-352(2) of the GST Act. The identified enterprise carried on by the Vendor in relation to the Property comprises the leasing and management of the Property. The identified enterprise does not include the portion of the Property in respect of which the Vendor has not entered into an agreement to lease by the settlement date. Subject to the assumption that the Vendor will carry on the identified enterprise until the settlement date, the supply of the Property by the Vendor will be a supply under an arrangement that satisfies the requirements of subsection 38-325(2) of the GST Act except to the extent outlined above. Apportionment between a GST-free supply and a taxable supply will be required. As the draft Agreement provides for the Purchase Price to be inserted, we consider that paragraph 38-325(1)(a) of the GST Act is satisfied. Paragraph 38-325(1)(b) of the GST Act requires that the recipient is registered for GST or required to be so registered. We consider that whether the purchaser of the Property is registered or required to be registered is a matter of substance rather than form and we have made this ruling subject to an assumption that that is the case. Paragraph 38-325(1)(c) requires that the supplier and recipient have agreed in writing that the supply is of a going concern. The Agreement satisfies this requirement.