Private ruling: Goods and services tax (GST) and sale of property
Date of advice: 24 September 2015
Published: November 2015

Ruling: Q1: Is GST payable on your sale of the property? | A1: No.

Relevant facts and circumstances: You are registered for GST. You are a superannuation fund. You formerly leased out a commercial property at a location in Australia (the property). You sold the property to X (the purchaser). The purchaser is registered for GST. The lease commencement date stated in your lease contract with Y is (date). The lease expiry date stated in this contract is (date). The property sold in a certain month. You leased out the property up to the time of sale. You transferred to the purchaser your interest in the lease. The purchaser intends to lease out the property following expiration of the Y lease, whilst exploring other better uses to which the property may be put including leasing it out for retail or residential purposes and/or redevelopment. You and the purchaser agreed in writing that the sale of the property with lease intact is a supply of a going concern.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 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 made a GST-free supply of a leasing going concern to the purchaser. | 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 sold the property for consideration • you sold the property in the course or furtherance of an enterprise you carried (leasing/activities of a superannuation fund) • the supply was connected with Australia (as the property is located in Australia), and • you are registered for GST. There are no provisions of the GST Act under which the sale of the property is input taxed. Therefore, what remains to be determined is whether the sale is GST-free. | Detailed Reasoning - 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. Paragraphs 149 to 151 of GSTR 2002/5 discuss the concept of 'continued operation'. They state: | Detailed Reasoning - Continued operation: 149. The term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise. 150. 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. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating. 151. The activity of leasing a building which has previously been leased to a tenant remains an 'enterprise' of leasing for the purposes of section 9-20 during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, where a building has not previously been leased to a tenant, but is being actively marketed, an 'enterprise of leasing' is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building. In your case, the things necessary for the continued operation of your leasing enterprise are the property and the lease. You supplied the property and the lease to the purchaser and you were operating your leasing enterprise up to the time of sale. Hence, you supplied all of the things necessary for the continued operation of your leasing enterprise. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met. You carried on your leasing enterprise up to the time of settlement of sale. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is met. As you meet both requirements of subsection 38-325(2) of the GST Act, you made a supply of a going concern to the purchaser. You supplied the 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 have agreed in writing that the sale of the property with lease intact 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 made a GST-free supply of a going concern. Therefore, GST is not payable on your sale of the property.