Private ruling: GST and Going concern - Leasing enterprise
Date of advice: 8 July 2015
Published: July 2015

Ruling: Q1: Will your supply of the properties be 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 ? | A1: Yes. Your supply of the property will be a GST-free supply of a going concern.

Relevant facts and circumstances: You, are registered for GST. You own commercial properties located in Australia (the Property) which you lease to Entity A. The lease commenced ddmmyyyy. You exchanged contracts to sell the Property and assign the lease on the ddmmyyyy. The settlement date was ddmmyyyy and the purchaser is Entity B. Entity B is registered for GST. The contract provides that the vendor will supply the lease with entity A, amongst other things, to Entity B. The contract sets out that the sale price is $X million .

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 38-325

Reasons for decision: Summary: Note: In this ruling, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act The supply will be a GST-free supply of a going concern where the requirements of section 38-325 are met. Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explains what a 'supply of a going concern' is for the purposes of section 38-325 and when the 'supply of a going concern' is GST-free. For a supply to be a GST-free supply of a going concern under section 38-325: • the supply must be made under an arrangement under which: • the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise (paragraph 38-325(2)(a)), and • the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise) until the day of the supply (paragraph 38-325(2)(b)) • the supply must be for consideration (paragraph 38-325(1)(a)) • the recipient of the supply must be registered or required to be registered for GST (paragraph 38-325(1)(b)), and • the supplier and the recipient must have agreed in writing that the supply is of a going concern (paragraph 38-325(1)(c)). | Detailed Reasoning - Subsection 38-325(2): Supply under an arrangement The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under paragraph 38-325(1)(c) or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. In our view, the contract constitutes an arrangement that satisfies the requirements of subsection 38-325(2). Supplier supplies all things necessary for the continued operation of an enterprise Paragraphs 38-325(a) and (b) require the conditions to be satisfied in relation to an 'identified enterprise'. The term 'enterprise' is defined in section 9-20 and includes an activity or series of activities done in the form of a lease, licence, or other grant of an interest in property. You are currently leasing the Property and we consider this to be the 'identified enterprise'. Where the enterprise is identified, a supplier needs to supply to the recipient all of the things that are necessary for the continued operation of an enterprise so that the recipient is put in a position to carry on the enterprise, if it chooses (Paragraph 74 of GSTR 2002/5). In this case you will supply to the purchaser the leasing enterprise consisting of the premises, and the lease. It is our view that all the things necessary for the continued operation of the leasing enterprise will be supplied under the arrangement. Supplier carries on the enterprise until the day of the supply Under paragraph 38-325(2)(b), a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be carried on, by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership (refer to paragraph 141 of GSTR 2002/5). The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier (refer to paragraph 161 of GSTR 2002/5). Pursuant to the contract, you warrant that you will continue to carry on the enterprise of leasing the Property until completion date. Therefore this criteria is met. | Detailed Reasoning - Subsection 38-325(1): Supply for consideration Paragraph 38-325(1)(a) requires that the supply is made for consideration. The consideration for the supply of the leasing enterprise of the Property is agreed and set out in the contract. We consider that the supply will be made for consideration. Recipient registered for GST Paragraph 38-325(1)(b) requires that the recipient is registered or required to be registered for GST. As the purchaser is registered for GST, it is considered that this requirement will be met. Agreed in writing Under paragraph 38-325(1)(c), the supplier and the recipient must have agreed in writing that the supply is of a going concern. We consider that you and the purchaser have agreed in writing that the supply of the Property with the assignment of the lease will be the supply of a going concern. | Detailed Reasoning - Conclusion: Taking all the above facts into consideration, it is agreed that the sale of the Property by you to the purchaser will meet the requirements of a GST-free supply for the purposes of section 38-325.