Private ruling: Goods and services tax - going concern, GST-free supply
Date of advice: 30 June 2016
Published: August 2016

Ruling: Q1: Whether the sale of the land by Entity A to Entity B for $X million is a GST-free supply of a going concern. | A1: Yes

Relevant facts and circumstances: Entity A is registered for GST and owns certain land. Entity A has entered into a Project Development Agreement (PDA) with Entity C to develop the land. Pursuant to the PDS, Entity C provides to Entity A the following development services: a) Obtaining the necessary or desirable approvals for the subdivision of the land; b) Procurement of the carrying out of works both on and off the land; c) The dedication of parts of the land; d) The subdivision of the land; e) The procurement of the promotion, marketing, sale and management of the conveying of the sale lots; and f) The engagement of a builder to construct dwellings and associated improvements on the land. Pursuant to the PDA, a number of lots have been created from the land which Entity A has sold. Entity A proposes to sell the remaining land (the land less those lots sold by Entity A) and novate its interest in the PDA to Entity B for $X million. Entity B agrees to buy the remaining land and to enter into the PDA Novation Deed with Entity A. The PDA Novation Deed provides, among other things: ● Entity A novates its rights and obligations under the PDA to Entity B, and ● Entity B is taken to be a party to the PDA instead of Entity A in relation to all of the rights and obligations of Entity A in relation to the development of the remaining land under the PDA. At the time of sale of the remaining land, completed lots and land packages [being part of the remaining land] are available and being marketed for sale to the public under the PDA. It is estimated that additional lots can be created [or developed] from the remaining land after the sale pursuant to the novated PDA.

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 9-10 | A New Tax System (Goods and Services Tax) Act 1999 section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision: Summary: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Section 38-325 Section 38-325 provides: (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). Pursuant to the PDA, Entity C provides the following development services to Entity A: a) obtaining the necessary or desirable approvals for the subdivision of the land; b) procurement of the carrying out of works both on and off the land; c) the dedication of parts of the land; d) the subdivision of the land; e) the procurement of the promotion, marketing, sale and management of the conveying of the sale lots; and f) the engagement of a builder to construct dwellings and associated improvements on the land. Pursuant to the PDA, Entity A has, among other things: ● the benefits of receiving the development services from Entity C, and ● the obligations to pay a development service fee to Entity C upon settlement of developed lot in relation to the land. Upon completion of the development of the land, a number of lots will have been developed. At the time of sale of the remaining land, Entity A has sold a number of lots developed in the land under the PDA and land packages [being part of the remaining land] are available and being marketed for sale to the public under the PDA. For GST purposes, Entity A carries on an enterprise of developing the land under the PDA before selling the remaining land. That is, Entity A carries on the enterprise until the day of sale of the land. Further, Entity A makes a supply of the remaining land to Entity B for consideration upon selling the land to it. The PDA Novation Deed provides, among other things: ● Entity A novates its rights and obligations under the PDA to Entity B, and ● Entity B is taken to be a party to the PDA instead of Entity A in relation to all of the rights and obligations of Entity A in relation to the development of the remaining land under the PDA. From the day of settlement, Entity B stands in the shoes of Entity A in relation to the development of the remaining land under the PDA. For GST purposes, from that day, in addition to making a supply to Entity B of the remaining land, Entity A makes a supply to Entity B of its rights and obligations, among other things, under the PDA in the development of the remaining land. Therefore, from that day, Entity B can carry on the enterprise of developing the remaining land under the PDA. For GST Purposes, the sale of the remaining land and the novation of the PDA by Entity A to Entity B constitute an arrangement under which: (a) Entity A supplies to Entity B all of the things that are necessary for the continued operation of the enterprise of developing the remaining land under the PDA; and (b) Entity A carries on the enterprise until the day when it supplies those things to Entity B. Therefore, the sale of the remaining land and the novation of the PDA by Entity A to Entity B constitute a going concern. As Entity A has agreed with Entity B in writing that the supply of the going concern is for $X million, the supply is GST-free.