Private ruling: GST and sale of real property
Published: March 2015

Ruling: Q1: Is the sale of the Property a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to the extent that the leases are continuing at settlement? | A1: Yes. Subsection 38-325(2) of the GST Act requires that: (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 above requirements need to be satisfied in relation to an identified enterprise. In this case the Vendor is carrying on a leasing enterprise. All of the things that are necessary for the continued operation of a leasing enterprise include the supply of the property together with the existing lease agreements. Accordingly, for the sale of the leasing enterprise to be a supply of a going concern, the Vendor must carry on the leasing enterprise from the Property until the day of supply. Further, the Vendor must supply the Property together with the existing lease agreements (including the monthly periodic tenancy) to the Purchaser so that the Purchaser can continue the leasing enterprise without any disruption. Therefore, to the extent that the Property is sold with leases intact and the parties agree in writing that the supply is of a going concern, the supply will be GST-free under section 38-325 of the GST Act as it will meet all the requirements of that section. | Q2: To the extent the leases are not continuing at settlement is the sale of the residential units input taxed and the sale of the commercial premises taxable? | A2: Yes. To the extent that the property is sold without the existing lease agreements, the supply is not a GST-free supply of a going concern under section 38-325 of the GST Act. The sale of a residential unit that is not supplied with the lease intact will be an input taxed supply under section 40-65 of the GST Act. The sale of the commercial premises if not supplied subject to the monthly periodic tenancy will be a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances: The Vendor and Purchaser jointly applied for this GST private ruling. Both parties are registered for GST. The Vendor is the registered proprietor of the Property. The Vendor as the Grantor and the Purchaser as the Grantee entered into the 'Call Option Deed' (the Deed). Under the Deed the Vendor granted to the Purchaser a Call Option to purchase the Property in return for the payment of the Call Option Fee. The Deed requires the Purchaser to seek a GST ruling in relation to the sale of the Property and clause X of the Deed provides that should the ATO ruling determine that the transactions under the Contract are GST-free by reason of the supply being a going concern, then the parties agree that the supply is a going concern and GST-free and the front page of the Contract will be amended to note that GST is not payable and the sale is GST-free as a going concern. The front page of the Contract for the sale of land (the Contract) attached to the Deed notes that the Property will be sold 'subject to existing tenancies'. The Contract provides that the price is $X. The Property consists of residential units and commercial premises which are all currently leased to tenants subject to respective lease agreements. The lease of the commercial premises has expired and the lessee continues to occupy the premises on a month by month basis. All residential units are currently occupied under existing residential leases terminating on specified dates in the future.

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 9-80. | A New Tax System (Goods and Services Tax) Act 1999 Section 38-325. | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(2). | A New Tax System (Goods and Services Tax) Act 1999 Section 40-65. | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.