Private ruling: GST and the supply of a going concern
Published: March 2015

Ruling: Q1: Is GST payable on the sale of the properties? | A1: No, GST is not payable on the sale of the properties. We are of the view that the supply of the properties meet the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore is GST-free. The vendor carried on leasing enterprise under which certain parts of the properties were leased to entity 1. The vendor also carried on another enterprise which was an informal leasing enterprise under which part of the properties was leased to entity 1. The vendor has supplied everything that was necessary for the continued operation of these two enterprises to the purchaser. The vendor also carried on these two enterprises until the day of the supply of the properties. Therefore, the requirements of subsection 38-325 (2) of the GST Act are satisfied. As the supply of the properties also meets the requirements of subsection 38-325(1) of the GST Act, the supply is a GST-free supply of a going concern.

Relevant facts and circumstances: The vendor has entered into a contract of sale of the properties for a certain price to the purchaser. The vendor carries on two separate leasing enterprises (lease 1 and lease 2). Further details about these enterprises are as follows: • Lease 1 The vendor has entered into a lease agreement (lease) to lease certain parts of the property to entity 1. This lease commenced one day before the date of the sale contract. The property that is being leased under the lease agreement excludes a part of the property (area A). • Lease 2 Under an unwritten arrangement between entity 1 and vendor, the vendor has made a certain part of the properties made available to entity 1 for entity to be sub-leased by entity 1. Entity 1 has entered into lease agreement with a third party under which entity 1 has leased area A. Area A does not form part of the lease 1. Entity 1 received the lease payments from the third party. The vendor did not receive any lease payments from either entity 1 or the third party. Entity 1 remitted the GST that was payable on the lease payments to the Tax Office. The purchaser will become the lessor of the properties (including area A) to the third party following the settlement of the contract. Both the vendor and the purchaser are registered for GST. Under the contract of sale of the properties the vendor and the purchaser have agreed that the sale of the properties is the supply of a going concern. The vendor will continue to lease both, lease 1 and lease 2 until the day of settlement of the properties.

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