Private ruling: GST and supply of a going concern
Published: May 2013

Ruling: Q1: Is the sale of the property subject to the existing lease a GST-free supply of a going concern? | A1: Yes.

Relevant facts and circumstances: You are carrying on a leasing enterprise. You owned a commercial property located in Australia (the property). You acquired the property prior to 1 July 2000. On a specified date you exchanged contracts for the sale of the property with a specified entity (the purchaser). The contract for the sale of the property (the contract of sale) was to be completed on a specified date. The purchaser has been registered for GST for a number of years. The first page of the contract provides that the property was sold with vacant possession. However you advised that this was an error and that the property was sold subject to the existing lease. You provided a copy of the lease of the property. The lease identifies the tenant and the leased property. You advised that the whole property is leased to (the tenant). The tenant carries on its business from the property. The settlement took place on specified date. You are registered for GST. On the first page of the contract, the box next to the statement 'this sale is not a taxable supply because … the sale is: GST-free because the sale is the supply of a going concern under section 38-325' is ticked. Further, a special condition to the contract of sale provides that: · You and purchaser acknowledge and agree that the sale of the property in this agreement is the supply of a going concern. · The purchaser represents and warrants that it is registered or is required to be registered under the GST Act. · You agree that you will carry on the conduct of the business on the property as a going concern until completion of this sale. Another special condition to the contract of sale provides that the purchaser acknowledges that it is buying this property subject to the lease which is paramount to the transaction proceeding.

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 paragraph 9-20(1)(c). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-30(1)(a). | 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).

Reasons for decision: Summary: The sale of the property subject to the existing lease is a GST-free supply of a going concern. | Detailed Reasoning - Detailed reasoning: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: 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 be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (* denotes a term defined in section 195-1 of the GST Act) Based on the information that you have provided, the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act are met. This is because you sold the property for consideration, the supply was made in the course or furtherance of an enterprise that you carried on, the sale was connected with Australia and you were registered for GST at the time of sale. The sale of the property is not an input taxed supply under any provision of the GST Act or under a provision of another Act. Therefore, what is left to consider is whether the sale is GST-free. | Detailed Reasoning - GST-free supply: Paragraph 9-30(1)(a) of the GST Act provides that a supply is GST-free if it is GST-free under Division 38 of the GST Act or under a provision of another Act. Section 38-325 of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern. Section 38-325 of the GST Act states: (1) The *supply of a going concern is GST-free if: (a) the supply is for *consideration; and (b) the *recipient is *registered or *required to be registered; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. (2) 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). In order to determine whether the sale of the property is a GST-free supply of a going concern, firstly it needs to be determined whether the sale is a supply of a going concern as defined in subsection 38-325(2) of the GST Act. Paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act set out the requirements which need to be satisfied in relation to an identified enterprise. Section 9-20 of the GST Act provides that an enterprise includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or the grant of an interest in property (paragraph 9-20(1)(c) of the GST Act). In your case, you were carrying on a leasing enterprise from the property. This is the enterprise identified for the purposes of subsection 38-325(2) of the GST Act. Therefore, you were required to supply to the purchaser all of the things that were necessary for the continued operation of that enterprise (paragraph 38-325(2)(a) of the GST Act). You were also required to carry on the enterprise until the day of the supply (paragraph 38-325(2)(b) of the GST Act). Goods and Services Tax Ruling GSTR 2002/5 explains what is a 'supply of a going concern' for the purposes of section 38-325 of the GST Act and when the supply of a going concern is GST-free. Paragraph 72 of GSTR 2002/5 provides that what is necessary for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. Paragraph 73 of GSTR 2002/5 provides that a thing is necessary for the continued operation of an enterprise if the enterprise could not be operated by the purchaser in the absence of the thing. GSTR 2002/5 provides that, generally, all of the things that are necessary for the continued operation of a leasing enterprise include the supply of the property and the benefit of the covenants under a lease. In your case, the sale of the property was subject to the lease granted to the tenant. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met as on the day of the supply, you supplied to the purchaser all of the things that were necessary for the continued operation of the leasing enterprise. Furthermore, the requirement of paragraph 38-325(2)(b) of the GST Act is also met as you carried on the leasing enterprise until the settlement date. The sale of the property with the lease intact therefore is a supply of a going concern as it satisfies all the requirements of subsection 38-325(2) of the GST Act. The sale of the property also meets the requirements of subsection 38-325(1) of the GST Act as: · the sale was for consideration · you were registered for GST at the time of sale, and · according to the contract of sale, you and the purchaser had agreed in writing that the supply was of a going concern. The supply of the property with the lease intact is therefore a GST-free supply of a going concern as it meets all the requirements of section 38-325 of the GST Act.