Private ruling: GST and sale of a going concern
Date of advice: 22 February 2019
Published: May 2019
Date scheme commenced: The scheme commenced on XX XXXX 20XX.

Ruling: Q1: Is the sale of the property a GST-free supply of a going concern under 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 is selling a property including all improvements and fixtures except for the excluded items. The vendor executed a contract of sale of the Property with an entity which subsequently nominated another entity as the purchaser. The vendor and the purchaser are registered for GST. Prior to Settlement (a) the vendor and XYZ Proprietary Limited intend to execute a written lease agreement with annual rent of $x payable by XYZ Proprietary Limited to the Vendor for the term of the arrangement (Lease). (b) the vendor and the purchaser intend to agree in writing that the transaction will be the supply of a going concern for GST purposes. A Schedule of the deed of variations provides that the purchaser acknowledges that the property is sold subject to the Lease. The purchaser acknowledges receiving a copy of the lease, is deemed to have full notice of the contents of the lease and shall not make any objection, requisition or raise any claim in relation to the lease. The lease between the vendor and XYZ Proprietary Limited will continue up to and including the day of the supply, being Settlement. At Settlement, the vendor will dispose of the property to the purchaser under the contract subject to the lease with XYZ Proprietary Limited. The vendor will supply and the purchaser will acquire all of the things that are necessary for the continued operation of the leasing enterprise. The Property has the following services connected: ● Electricity supply ● Gas supply ● Water supply ● Sewerage ● Telephone services The contract states that the price for the property is $xxx.

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

Reasons for decision: Summary: 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; and ● 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. In this case, the supply of the property is for consideration, the purchaser is registered for GST and the vendor and the purchaser will agree in writing that the supply is of a going concern. As such, the requirements in subsection 38-325(1) of the GST Act are satisfied. Paragraphs 38-325(2) (a) & (b) of the GST Act provide that a 'supply of a going concern' is a supply under an arrangement where: ● the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and ● 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). In this case, provided that the vendor supplies the purchaser with all the things necessary for the continued operation of the leasing enterprise, and provided that the vendor carries on the leasing enterprise until the sale of the property, the Commissioner considers that paragraphs 38-325(2)(a) and (b) will be satisfied and accepts that the sale of the property will be a GST-free supply of a going concern. | Detailed Reasoning - Supply under an arrangement: There is no definition of the term arrangement in the GST Act. Generally, it means an arrangement, understanding, promise or undertaking whether expressed or implied, and whether or not enforceable or intended to be enforceable, by legal proceedings. For the purposes of the GST Act, it is not a supply itself that must satisfy the requirements of paragraphs 38-325(2)(a) and (b) of the GST Act, but the arrangement under which the supply is made. Goods and Services Tax Ruling GSTR 2002/5 - Goods and services tax: when is a 'supply of a going concern' GST- free? considers the meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise'. In particular, paragraph 80 of GSTR 2002/5 states: '80 The supplier supplies 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.' | Detailed Reasoning - Identified enterprise: Paragraph 29 of GSTR 2002/5 mentions the following: 29. Subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise. In this case the identified enterprise is the leasing enterprise carried on by the vendor. For the continued operation of the enterprise of leasing, it is necessary to supply the property together with the existing lease agreement. For the sale to be the supply of a going concern, the vendor must assign all existing lease agreements to the purchaser so that the purchaser can continue the leasing enterprise without any disruption. Therefore, for the vendor to be able to make a GST-free supply of a going concern it will need to make arrangements for the existing lease between it and XYZ Proprietary Limited to be assigned to the purchaser at settlement. In this case, we are informed that the contract for sale provides that the property is sold subject to the lease. We are also informed that the existing lease will be assigned to the purchaser at settlement and that the vendor will continue the leasing until the day of the supply. Where the property and the lease are transferred on settlement day and the assignment of the lease is effective as from settlement day, we agree that your supply will be a GST-free supply of a going concern.