Private ruling: GST and the supply of a going concern
Published: March 2014

Ruling: Q1: Will the disposal of the Property by the Vendor be the GST-free supply of going concerns pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: The Vendor entered in a contract (Contract) to sell the Property and the Y enterprises carried on upon it to the Purchaser. The enterprises carried on the property are the leasing of commercial premises and a car park. The Property consists of X lots which are adjoined The Vendor and Purchaser agreed in writing in the Contract that the sale of Property including the Y enterprises constituted the supply of the going concerns. At clause Y of the Contract the Vendor has warranted that it will carry on the enterprises until the date for completion and provide all things necessary for the continued operation of the enterprise. The Purchaser has warranted, also under clause Y of the Contract, that at the date for completion it is registered or required to be registered for GST. The leasing enterprise is carried on in the building. There are Z tenants in the building, two of which are occupying by way of lease with the remainder on monthly tenancies. The car parking enterprise is carried on elsewhere on the Property. The car park is sealed with asphalt and has line markings for approximately X parking spaces. All users of the car park pay parking fees on a daily basis. Parking fees are collected either by a member of the Vendor's personnel or by insertion of coins into a coin slot at the boom gate across the entrance of the car park. The personnel member is in attendance in the morning which enables users of the car park to pay their fees without having precisely the correct denomination of gold coins that are required to utilise the coin slot to gain entry for the balance of the day. The boom gate etc. will be supplied by the Vendor at completion. The licencing of the Property as a car park is by way of a development approval determined by Council. The development approval is attached to the Property and will transfer to the Purchaser upon transfer of the Property.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-325.

Reasons for decision: Summary: The disposal of the Property by the Vendor will be the GST-free supply of going concerns pursuant to section 38-325 of the GST Act. | Detailed Reasoning - Detailed reasoning: All legislative references are to the GST Act. Taxable Supply Under section 9-5, an entity makes a taxable supply if: • it makes a supply for consideration; and • the supply is in the course or furtherance of an enterprise that it carries on; and • the supply is connected with Australia; and • the entity is registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply will satisfy the positive limbs of section 9-5 and raises the issue of whether the supply will be a GST-free supply of a going concern. GST-free supply 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 (GSTR 2002/5) discusses a 'supply of a going concern' 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. However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. (Refer to paragraphs 19 and 20 of GSTR 2002/5.) The Contract provides for the supply of the leasing enterprise and the car parking enterprise on the Property and all that this entails (see below). 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 business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property. The Vendor conducts the leasing and car parking activities in relation to the Property. The Vendor's enterprise is continuous and uninterrupted. These are the 'identified enterprises'. Where the enterprise is identified, a supplier needs to supply all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses (Paragraph 30 of GSTR 2002/5). In this case the Vendor will supply to the Purchaser: • the leasing enterprise consisting of land, improvements and the assignment of the leases and tenancies; and • the car parking enterprise; consisting of land, the boom gate, coin acceptance mechanism and the development approval attached to the Property. 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). The day of supply occurs when the Vendor has done everything to satisfy its obligations under the Contract and the Purchaser has assumed effective control and possession of the Property. Pursuant to the Contract, the Vendor warrants that it will continue to carry on the enterprises of leasing the Property and operating the car park [clause Y of the Contract]. It is our view that the Vendor will carry on these enterprises until the day of supply to the Purchaser. | 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 represents and warrants that it is registered or required to be registered for GST as at Completion (Clause Y), 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. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply is a 'supply of a going concern' (refer paragraph 181 of GSTR 2002/5). The Contract sets out the conditions that must be met for the sale of the leasing and car parking enterprises to be affected. Clause Y of the Contract and clause 12 of the Special Conditions set out the requirements related to the GST Act. We consider that the Vendor and Purchaser agree in writing that the supply of the leasing enterprise and the car parking enterprise (and the Property) will be the supply of going concerns. Taking all the above facts into consideration, it is agreed that the sale of the Property by the Vendor to the Purchaser will meet the requirements of a GST-free supply for the purposes of section 38-325 of the GST Act.