Private ruling: GST and sale of real property
Date of advice: 10 September 2021
Published: November 2021

Ruling: Q1: Will the sale of the property, in accordance with the terms of the contract of sale, meet the requirements of a GST-free supply of a going concern under subdivision 38J of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes.

Relevant facts and circumstances: The vendor is the registered proprietor of the specified real property situated in Australia. The property is currently leased by the vendor to a tenant. The vendor has executed a contract of sale for the sale of its property to a purchaser for the specified price. The purchaser of the property is currently registered and will be registered for GST at settlement date. Pursuant to the contract of sale, the property will be sold to the purchaser subject to this current lease. Under the written contract of sale, the vendor and purchaser have agreed that the property is sold to the purchaser subject to the lease and that the sale is a sale of a going concern. At settlement, the lease will be assigned to the purchaser. The purchaser will be entitled to the lease payments from the lessee under the lease from settlement.

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 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 195-1

Reasons for decision: Summary: A supply of a going concern is GST-free where it meets the requirements specified in subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Subsection 38-325(1) of the GST Act provides that a 'supply of a going concern' is GST-free if: • the supply is for consideration • the recipient is registered or required to be registered for GST, and • the supplier and the recipient have agreed in writing that the supply is of a going concern. The term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act. Subsection 38-325(2) of the GST Act states: 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 part of a larger enterprise carried on by the supplier). 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) provides the Commissioner's view on GST-free supplies of going concerns. Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). Paragraphs 38-325(2)(a) and (b) of the GST Act set out the conditions that must be satisfied in relation to an identified enterprise. In this case, the 'identified enterprise' is a leasing enterprise. It is this leasing enterprise that the vendor will need to carry on until the day of the supply and for which the vendor must supply all of the things that are necessary for its continued operation in order to satisfy the requirements of subsection 38-325(2) of the GST Act. All of the things that are necessary for the continued operation of a leasing enterprise include the supply of the property and the covenants. Therefore, for the continued operation of the vendor's leasing enterprise, it will be necessary to supply the land with the leasing covenants. On the facts provided, the requirement of paragraph 38-325(2)(b) of the GST Act will be satisfied. Consequently, the sale of the property with the lease intact, would constitute a supply of a going concern as the requirements of subsection 38-325(2) of the GST Act will be satisfied. From the information provided, the requirements of subsection 38-325(1) of the GST Act will also be satisfied. Therefore, the sale of the property will meet the requirements of a GST-free supply of a going concern under subdivision 38J of the GST Act.