Private ruling: Goods and services tax (GST) and going concerns
Date of advice: 16 September 2015
Published: September 2015

Ruling: Q1: Will GST be payable on your sale of the rent roll management enterprise? | A1: No.

Relevant facts and circumstances: You are registered for GST. You carry on a business, which includes a residential property sales agency and managing rent rolls. You carry on your business in Australia. You will sell a rent roll management enterprise to a GST registered purchaser. You will supply the following things to the purchaser: • the management rights relating to the rent roll management enterprise • goodwill • rent roll • systems and software • the computers used in managing the rent roll • the keys to managed properties • all relevant documents: • tenancy agreements • correspondence files • repairs and maintenance documents • documents detailing fee payments • documents detailing fee paid to landlords • all documentation required to carry on the fees roll management enterprise. On settlement, you will write to all relevant parties advising that a new management has been appointed. You conduct your rent roll management enterprise and sales agency enterprise from your office. The office is used to interview prospective clients. In some instances, current or prospective clients attend your office to obtain information and collect documents. A proportion of clients meet with your staff in your office. You have contact with existing clients on an ad hoc basis and the majority of contact is by mobile phone or e-mail. Only a small minority of the ad hoc meetings are held in your office. Most clients pay their fees by direct debit. It is rare for a client to visit your premises to make a payment. You will not supply your office to the purchaser because the rent roll management enterprise will be relocated to the purchaser's office. You will manage the rent roll up to the time of sale of the rent roll. You and the purchaser have not entered into a sale contract yet. You and the purchaser will agree in writing that that sale of the rent roll management enterprise is the supply of a going concern.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | 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: You will make a GST-free supply of a going concern. | Detailed Reasoning - Detailed reasoning: GST is payable on taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 the indirect tax zone; 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. The indirect tax zone is Australia. You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: • you will supply the rent roll management enterprise for consideration • you will supply the rent roll management enterprise in the course or furtherance of an enterprise you carry on • the supply will be connected with Australia, and • you are registered for GST. There are no provisions of the GST Act under which the sale of the rent roll management enterprise is input taxed. Therefore, what remains to be determined is whether the sale will be GST-free. Supplies of going concerns A supply of a going concern is GST-free where the requirements of section 38-325 of the GST Act are met. 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 date of the supply (whether or not as part of a larger enterprise carried on by the supplier). Subsection 38-325(1) of the GST Act states: 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. Paragraphs 73 and 75 of Goods and Services Tax Ruling GSTR 2002/5 provide guidance on the concept of 'things necessary for the continued operation of an enterprise'. They state: 73. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing. For example, a boat may be essential to the conduct of the businesses of a professional fisherman, a water-ski instructor, a deep-sea diving instructor or a repairer of underwater structures because, in most instances, the relevant business could not be conducted at all without a boat. The supplier must supply the boat for the continued operation of the enterprise. 75. Two elements are essential for the continued operation of an enterprise: • the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and • the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion. Paragraph 150 of GSTR 2002/5 provides that a supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. You will operate your rent roll management enterprise up to the time of sale. The things necessary for the continued operation of your rent roll management enterprise are: • the management rights relating to the rent roll management enterprise • goodwill • rent roll • systems and software • the computers used in managing the rent roll • the keys to managed properties • all relevant documents: • tenancy agreements • correspondence files • repairs and maintenance documents • documents detailing payments • documents detailing payments made to landlords • all documentation required to carry on the rent roll management enterprise. You will supply these things to the purchaser. | Detailed Reasoning - Premises: Paragraphs 90 to 96 of GSTR 2002/5 provide guidance on determining whether premises are a thing necessary for the continued operation of an enterprise. They state: | Detailed Reasoning - Premises that are necessary: 90. Where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied. Characteristics or attributes of particular premises may be determinative of the necessity for those particular premises to be supplied. For example, a factory building may have specially modified floors to take the weight of certain necessary machinery. The characteristics of the building itself are such that those particular premises are necessary for the continued operation of the enterprise. 91. Where an enterprise is necessarily conducted from premises, but particular premises are not necessary, then suitable premises, or the right to occupy such premises, must be supplied as one of the things that are necessary for the continued operation of the enterprise. Where premises are necessary for the continued conduct of the enterprise and premises are not supplied by the supplier because the recipient has, or is able to secure, suitable premises prior to the day of the supply, the supplier is not supplying a thing which is necessary for the continued operation of an enterprise. 92. In limited circumstances, an enterprise may not need to operate from premises and therefore premises are not one of the things necessary for the continued operation of that enterprise. This is the case where an enterprise requires few tangible assets, for example, a personal fitness trainer who visits clients and does not need any premises to operate the enterprise. Example 12: premises that are not necessary 93. Betty is a clairvoyant who works from home. Betty provides tarot readings over the telephone using a 0055 number. Betty sells her business including her cards, the files on her regular clients, her advertising material, her trading name 'Madame Ecarte' and the 0055 number to Bruce. She is not required to supply her home as a part of the 'supply of a going concern'. Premises are not an essential part of her enterprise. Example 13: premises that are necessary 94. DeliCo conducts a delicatessen business from leased premises adjacent to a large grocery retailer within a suburban shopping mall. DeliCo negotiates the sale of the business to another registered entity, NewCo, which has its own premises from which it intends to operate the delicatessen. The contract provides that the business name, plant and equipment, stock and goodwill are to be supplied to NewCo. DeliCo retains its premises and intends to commence another business from these premises. 95. Because the delicatessen is conducted from premises within the mall, some premises are necessary for the conduct of the delicatessen business. The supply is not the 'supply of a going concern' as DeliCo is not supplying premises which are one of the things that is necessary for the continued operation of the supplier's enterprise. 95. Because the delicatessen is conducted from premises within the mall, some premises are necessary for the conduct of the delicatessen business. The supply is not the 'supply of a going concern' as DeliCo is not supplying premises which are one of the things that is necessary for the continued operation of the supplier's enterprise. Example 14: particular premises 96. Heavy Duty Ltd manufactures earth moving equipment in its suburban factory. Heavy Duty Ltd intends to sell its manufacturing business. The factory floors have been specially modified to handle the extreme weights of the manufacturing plant and earth moving equipment produced. Heavy Duty Ltd must supply the factory as one of the things that is necessary for the continued operation of the enterprise. An office is not a thing necessary for the operation of a rent roll management enterprise. A rent roll management enterprise can be operated without an office. You will supply all of the things necessary for the continued operation of your rent roll management enterprise. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met. You will carry on the rent roll management enterprise up to the time of sale. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is met. As all of the requirements of subsection 38-325(2) of the GST Act are met, you will supply a going concern. You will supply this going concern for consideration. Therefore, the requirement of paragraph 38-325(1)(a) of the GST Act is met. The purchaser is registered for GST. Therefore, the requirement of paragraph 38-325(1)(b) of the GST Act is met. You and the purchaser will agree in writing that the sale of the rent roll management enterprise is the supply of a going concern. Therefore, the requirement of paragraph 38-325(1)(c) of the GST Act is met. As all of the requirements of section 38-325 of the GST Act are met, you will make a GST-free supply of a going concern. Therefore, GST is not payable on your sale of the rent roll management enterprise.