Private ruling: GST and going concern
Published: September 2014

Ruling: Q1: Will your sale of the Proposed Lot in accordance with the draft Contract for Sale, be GST-free as the supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes. Your supply of the Proposed Lot will be a GST-free supply of a going concern under section 38-325 of the GST Act. This is because, on settlement date, you will be providing the purchaser all of things that are necessary for the continued operation of a property development enterprise, being: • X proposed stages comprise X proposed residential lots (Proposed Lot) and Stage X • Sales building with related chattels • Development Approvals • Infrastructure Agreement with Council • Services Contracts • approval for street names for internal roads. In addition, you will continue to carry on the property development enterprise until the day of the supply, including the following activities: • Creation of the new title for the land to be sold to the Purchaser. • You are actively marketing the development including the land to be sold to the Purchaser. • Meeting ongoing obligations in relation to hazard reduction, site maintenance and security on the land including general slashing, looking over the land and rectifying and problems identified and receiving contact form the local community about undesirable activity on the land. • Temporary disconnection points will be created near the boundary prior to completion of the contract so the Purchaser can readily connect into the main service lines for water, sewer and power. The requirements under subsection 38-325(2) are satisfied. Finally, there is a clause in the Contract for Sale indicating that you and the purchaser have agreed in writing that the sale is a supply of going concern, the sale will be for consideration and the purchaser is registered for GST. The requirements under subsection 38-325(1) are satisfied.

Relevant facts and circumstances: You are registered for GST. You are the owner of land used for a staged residential subdivision. You have completed sales of residential lots in the early stages of the development and rather than completing the final stages, you intend to sell the remaining stages to another residential developer. The Purchaser is registered for GST. The land to be sold relates to X proposed stages. In total, those X proposed stages comprise X proposed residential lots. In addition, the land to be sold will also include a parcel of land referred to as 'Stage X'. That parcel presently has a 'Sales building' located on it, which you use as a Sales and Information Centre for the development. The Sales building, together with related chattels, will be included in the sale. You are in the process of subdividing the land to create a new title, referred to as Proposed Lot. Once created, Proposed Lot will comprise the land in the X proposed stages and Stage X. You supplied a draft copy of the Contract for Sale (Contract) which you intend to enter with the Purchaser. The Contract provides: • the purchase price • you must apply to the Commissioner for a private ruling seeking confirmation that the sale of the Property is GST-free as the supply of a going concern • the parties agree that the sale of the Property is GST-free as the supply of a going concern In respect of the land to be sold, you have: • cleared the majority of the site • agreed with the Purchaser that you will connect 'Services' (electricity, storm water, sewerage and telecommunications) to the boundary by Completion • obtained Development Approvals, which will be transferred to the Purchaser as a part of the sale • entered into an Infrastructure Agreement with Council, which will be novated to the Purchaser, so that the Purchaser is entitled to the benefits and liable for the obligations under that agreement • entered into Services Contracts, which will be transferred to the Purchaser • obtained approval for street names for internal roads. You have a Sales building on Stage X, which is used as a sales office and information centre for the Development. Following the sale of Proposed Lot, the Purchaser may lease or license that part of the land with the Sales building located on it back to you, so that it may continue to be utilised by you for a short period. The Purchaser will also use the Sales building for the purposes of its own sales. Ultimately the land on which the Sales building is located will be dedicated to the local council as a road reserve, in accordance with the Infrastructure Agreement. As a part of the Development Approval of the Development, Stage X is to be dedicated during the last stage of development, or within X months of written notice from the Council (whichever is sooner). Until the dedication of the land occurs, a bond for the value of the land is to be provided to Council. Following completion of the sale of Proposed Lot, the Purchaser will be responsible for the dedication of this land to the Council. You have provided security bonds to the Council to secure obligations under the Development Approvals, including in relation to the dedication of Stage X. The Purchaser is required to provide equivalent security to you at Completion, so that the Purchaser effectively takes on the security obligations. You are in the business of developing and selling residential lots, and hold the land which comprises Proposed Lot as trading stock for income tax purposes. You have provided the following further information in support of your application: Development Stages • The development is a planned community. The development has been undertaken in stages and over several years. To date, you have completed and sold (or are in the process of completing and selling) approximately X lots. • The land that is to be sold to the Purchaser is expected to yield a further X lots, representing the tail end and approximately X% of the development. • You continue to sell lots from the land you will retain and are in the process of completing the creation of approximately X new lots in Stages X. Of these, approximately X lots have been sold 'off-the-plan' and approximately X lots remain unsold. It is presently expected that the sale of those lots should be completed in X. Creation of the balance title to be sold the Purchaser • The land that has been developed by you was on one title, prior to the registration of a sealed plan for each Stage. The plan sealing and registration process for Stages X will create the new boundary for the land that is to be sold to the Purchaser. While the anticipated boundary is already known to the parties based on the plan of survey, the boundary will not be confirmed until the sealed plan registration process is completed for Stages X. • Further, the completion of the plan sealing and registration for Stages X will create the new title for the land to be sold to the Purchaser. That is, the work you are undertaking in respect of the 'parent title' (in respect of Stages X) will create the 'balance title' which will be sold to the Purchaser. X days after the balance title is created (i.e. the plan sealing and registration for Stages X is completed), the sale to the Purchaser will be completed. Ongoing Marketing & Promotion • You continue to actively market the development, which includes the land to be sold the Purchaser. This marketing includes: • Online marketing for the development. • Roadside billboards and other directional signs leading to the development. • Ongoing operation of a 'Sales building', which is manned five to six days per week, including over weekends. People attending the Sales building can ask for general information relating to later stage releases, including in respect of the land to be sold to the Purchaser. • The principal reason you have been able to continue marketing the whole of the development is because the Purchaser is expected to complete the remaining stages in conformity with the existing development approvals and designs. Obligations in relation to the land - hazard reduction, grooming and security • Until completion of the sale you have the following responsibilities for the land to be sold: • Hazard reduction including general slashing on the site, particularly for areas that front onto public roads or which front onto completed stages of the development. • You have fenced the site and erected signage confirming ownership and warning trespasses that they risk committing an offence. • You have an interest in the maintenance of the site for aesthetic purposes. Development Managers will generally look over the land if they attend at the development site and if they identify any problems, this is raised so that it can be rectified. • Members of the local community are also invited to contact you if they notice any undesirable activity, such as fences being cut or dirt / trail bikes being ridden on the land. Connection of services to the boundary • Generally speaking, connection of services (for water, sewer and power) to each lot in a Stage will be completed shortly prior to the 'titling' (i.e. registration of the sealed plans) for that Stage. • In relation to Stages X, the connection of those services has been completed, or will be completed soon. So that the Purchaser can readily connect into the main service lines for those services, temporary disconnection points will created near the boundary for the balance title.

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