Private ruling: GST and purchase of a property as supply of a going concern
Published: April 2014

Ruling: Q1: Will the purchase of the property be a GST-free supply of a going concern to you? | A1: Yes, the purchase of the property will be a GST-free supply of a going concern to you.

Relevant facts and circumstances: ABC Pty Ltd as trustee for the XYZ Property Trust (you) is registered for goods and services tax. You purchased a commercial property for $XXX million and the contract of sale provides that the property is sold with the existing lease covenants. According to the contract of sale parts of the property are in vacant position and the vendor is actively marketing the vacancies. Under the contract of sale, the vendor and the purchaser agree that all supplies made by the vendor under this contract shall together be the supply of a going concern. The purchaser represents and warrants that it is registered for GST and that it will continue to be registered for GST at completion. The vendor warrants to the purchaser that for the purpose of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the contract of sale provides for the supply of all of the things necessary for the continued operation of the enterprise being supplied by the vendor and the vendor will carry on the enterprise until the completion date. The contract of sale provides that from completion the vendor assigns to the purchaser the benefit of all covenants and other obligations in favour of the vendor under the leases and as far as it is able to do, the benefit of all lease guarantees. All rent payable by the lessees under the leases belongs to the vendor up to and including the completion date. From and including the day after the completion date it belongs to the purchaser. With effect from completion, the vendor assigns to the purchaser for its benefit absolutely any assignable service contracts which are current at completion. If the consent of persons providing services under the service contracts cannot be obtained for any reason, the vendor must hold the benefit of such service contracts on behalf of the purchaser for the balance of their duration.

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 38-325

Reasons for decision: Summary: A supply of a going concern is a GST-free supply where the requirements of section 38-325 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) are satisfied. Subsection 38-325(2) of the GST Act provides that for a supply to be a supply of a going concern the supply must be made under an arrangement under which: • the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and • the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise) until the day of the supply. Subsection 38-325(1) of the GST Act provides that the supply of a going concern is GST-free if: • the supply is for consideration; and • the recipient of the supply is registered or required to be registered for GST; and • the supplier and the recipient have agreed in writing that the supply is of a going concern. Supply under an arrangement The term supply under an arrangement includes a supply under a single contract or supplies under multiple contracts which comprises a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under paragraph 38-325(1)(c) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. (Refer to paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5) The supply of the property has been made under a contract of sale and the special conditions attached to it have been considered as an arrangement between you and the vendor for the purpose of GST-free supply of a going concern. Supplier supplies all things necessary for the continued operation of an enterprise . Paragraph 38-325(2)(a) and (b) of the GST Act require the conditions to be satisfied in relation to an identified enterprise. The term enterprise is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property. A supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses (refer to paragraph 30 of GSTR 202/5). The vendor will provide all of the things necessary for the continued operation of its enterprise as per the contract of sale. The vendor will assign to the purchaser the benefit of all covenants and other obligations in favour of the vendor under the leases and as far as it is able to do, the benefit of all lease guarantees. Based on the terms and conditions of the contract of sale, it is our view that all of the things necessary for the continued operation of the enterprise will be supplied by the vendor under the contract of sale. Supplier carries on the enterprise until the day of the supply Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be 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 (refer to paragraph 141 of GSTR 2002/5) The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier. (refer to paragraph 161 of GSTR 2002/5) The contract of sale confirms that the vendor will carry on the enterprise until the completion date and therefore it is considered that the vendor will carry on the enterprise until the day of the supply. Supply for consideration This requirement is satisfied as a result of the vendor agreeing to sell the property subject to the leases to you for an amount of $XXX million. Recipient is registered or required to be registered You as a purchaser are registered for GST and will continue to be registered for GST at completion. Therefore, this requirement will be satisfied. Agreed in writing that the supply is of a going concern The term agreed in writing means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply is a supply of a going concern (refer paragraph 181 of GSTR 2002/5) The contract of sale confirms that both vendor and the purchaser agree that all supplies made by the vendor under the contract shall together be the supply of a going concern. Taking all the above facts into consideration, it is considered that the acquisition of the property will be a GST-free supply of a going concern to you.