Private ruling: GST and sale of a rent roll business.

Ruling: Q1: Is the sale of a rent roll business a GST-free supply of a going concern? | A1: 




Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You currently operate a real estate business from your own premises. | You are registered for GST. | You intend to sell a rent roll business to the Purchaser. | The Purchaser is registered for GST. | The Purchaser has signed an Agreement for the Sale of Business (the Agreement) with you, which includes the following: | · the settlement date is later in 2011 | · on settlement all records and documents relating to the rent roll business will be delivered to the Purchaser, including: | o rental bond transfer forms | o statements provided to the landlords | o repair and maintenance details | · You will not transfer your business name, premises or contact numbers. | · There is a restraint of trade for three years in the Agreement | The Agreement contains a statement that the parties agree the supply of the rent roll business is the supply of a going concern. | The Agreement contains a warrant that you will: | · carry on the rent roll business until settlement | · supply all of the things that are necessary for the continued operation of the business. | You intend to transfer all of the tenancies to the Purchaser. | You have advised us that a very small number of tenants physically make payments at your current business premises. The overwhelming method of payment is via direct debit. | Through and an agreement between you and the Purchaser, the Purchaser has made offers of employment to the employees who currently manage your rent roll business. | Detailed reasoning: Section 9-5 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that 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 b e registered. | However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. | (The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act. These terms are explained where they impact on this ruling.) | The Agreement outlines the sale price for the rent roll business and the supply is made as part of your enterprise. The supply is connected with Australia and you are registered for GST. Therefore, paragraphs (a), (b), (c) and (d) of section 9-5 of the GST Act are satisfied. | Furthermore, the supply of the rent roll business by you will not be an input taxed supply under any provision of the GST Act. We will now consider whether the supply of the rent roll business by you is GST-free. | Under subsection 38-325(1) of the GST Act, the supply of a going concern is GST-free if: | · the supply is for *consideration; and | · the *recipient is *registered or *required to be registered; and | · the supplier and the recipient have agreed in writing that the supply is of a going concern. | As the Agreement outlines the purchase price for the rent roll business, the Purchaser is registered for GST and you and the Purchaser have agreed in writing that the supply is of a going concern, subsection 38-325(1) of the GST Act is satisfied. | However, for a supply to be a supply of a going concern, subsection 38-325(2) of the GST Act also needs to be satisfied. | The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act which states: | 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). | The Agreement confirms that you will carry on the rent roll business until settlement, thus satisfying paragraph 38-325(2)(b). However, we need to consider the 'all things necessary' test in paragraph 38-325(2)(a). | You are the supplier of the rent roll business. Therefore, for the sale to be a supply of a going concern it needs to be determined whether you will be supplying all the things that are necessary for the continued operation of the enterprise. | Goods and Services Tax Ruling GSTR 2002/5 explains what is a supply of a going concern. | In respect of the 'all things necessary' test paragraph 41 of GSTR 2002/5 states: | 41. This term emphasises that the elements of paragraph 38-325(2)(a) must be satisfied from the perspective of the supplier. The ability of the recipient to provide some of the things necessary for the continued operation of the enterprise is not a relevant consideration… | Under the Agreement the things that will be supplied by you include tenancy agreements, keys, inspection reports, rental bond transfer forms, statements provided to the landlords, correspondence files and repair and maintenance details. Also, through an agreement with you, the Purchaser has made offers of employment to the current employees that manage your rent roll business. | However, the Agreement does not provide for any premises to be provided to the Purchaser. Also, at the time of lodging your ruling request, it is not intended that premises will be made available to the Purchaser as they conduct a rent roll business from their own premises. | Paragraph 90 of GSTR 2002/5 provides that where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied. In our view, the rent roll business does not need to be carried on from your premises, so we need to consider whether 'premises' are a necessary thing that you need to supply in order for the rent roll business to be carried on. | Paragraph 91 of GSTR 2002/5 provides that where an enterprise is necessarily conducted from premises but particular premises are not necessary, then suitable premises, or the right to occupy such premises, must be supplied as one of the things that are necessary for the continued operation of the enterprise. | As stated above, paragraph 41 of GSTR 2002/5 provides that we must consider what the supplier is supplying . This is irrespective of whether the purchaser has their own premises from which they can conduct the rent roll business. | In our view, given the small proportion of tenants who attend your premises and the overall number of properties, premises are not one of the things necessary for the continued operation of the rent roll business. | Accordingly, you will be supplying all the things that are necessary for the continued operation of the rent roll business, which satisfies paragraph 38-325(2)(a) of the GST Act. | As the sale of the rent roll meets the statutory definition of a 'supply of a going concern' under subsection 38-325(2) of the GST Act it will satisfy all the requirements of section 38-325 of the GST Act and the sale will be GST-free. | Consequently, the sale of the rent roll business will be a GST-free supply of a going concern.