Private ruling: GST and supply of a going concern
Published: January 2015

Ruling: Q1: Are you entitled to an input tax credit on the purchase of a rent roll business from the vendor? | A1: No, as the supply of the rent roll business will be GST-free as a going concern.

Relevant facts and circumstances: You are registered for GST. You have entered into a contract to purchase a rent roll business. Before settlement the contract will be altered so that there is an agreement in writing between the vendor and you that the sale of the rent roll business will be the sale of a going concern. Management of the rent roll will transfer to you on the date of settlement and the vendor will manage the properties until settlement. The vendor is registered for GST. You will be acquiring all owner and tenant files, assignment forms signed by each owner, keys, security devices, land lord details file history notes, maintenance reports, signed authorities, entry and exit condition reports, all land lord and tenant correspondence, one vehicle, owner trust funds, tenancy payment ledger, owner and tenant statements, original leases, and all electronic data files from the property management system. You will employ the office manager of the vendor. You will operate from a home office. The vendor will not be providing premises. Around 99% of rental payments are made by direct debit. You will be using a new computer system and data will be transferred across to this system.

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 Section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 Division 38, and | A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.

Reasons for decision: Summary: In this reasoning, please note: • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au Under section 11-20, you are entitled to an input tax credit for any creditable acquisition that you make. Section 11-5 provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose (b) the supply of the thing to you is a taxable supply (c) you provide, or are liable to provide, consideration for the supply, and (d) you are registered, or required to be registered for GST. Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or the acquisition is of a private or domestic nature. In your case, you will be acquiring the rent roll business for a creditable purpose as it is for use in your rent roll business, you will provide consideration for the supply and you are registered for GST. However, it remains to be determined if the supply to you is a taxable supply. Section 9-5 provides that an entity makes a taxable supply if the supply is for consideration, the supply is made in the course or furtherance of an enterprise that the entity carries on, 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 primary issue in this case is whether the supply of the rent roll business to you is GST-free. Specifically, a GST-free supply of a going concern. Division 38 contains provisions relating to GST-free supplies. Section 38-325 of the GST Act deals with supplies of going concerns. Subsection 38-325(2) defines the supply of a going concern for GST purposes as a supply under an arrangement 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. 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 guidance on the operation of section 38-325. The principles outlined in GSTR 2002/5 have been applied in this case. The conditions in paragraphs 38-325(2)(a) and (b) of the GST Act must 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 on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property. In this case, the vendor conducts a rent roll business. In relation to the rent roll business as a going concern, the vendor must supply to the purchaser all of the things that are necessary for the continued operation of the enterprise. Where these things are supplied, you (as recipient) are put in a position to carry on the enterprise if you choose. In this case the vendor will provide all owner and tenant files, assignment forms signed by each owner, keys, security devices, land lord details file history notes, maintenance reports, signed authorities, entry and exit condition reports, all land lord and tenant correspondence, one vehicle, owner trust funds, tenancy payment ledger, owner and tenant statements, original leases, and all electronic data files from the property management system. The vendor will not provide premises under the arrangement. Paragraph 90 of GSTR 2002/5 provides that where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied. We need to consider whether 'premises' are a necessary thing to be supplied to you in order to carry on the rent roll business. Paragraph 91 of GSTR 2002/5 provides that 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. Paragraph 41 of GSTR 2002/5 provides that we must consider what the supplier is supplying. This is irrespective of whether the purchaser has their own premises from which they can conduct the rent roll business. Given that around 99% of rental payments are made by direct debit we consider that premises are not one of the things necessary for the continued operation of the rent roll business. Accordingly we consider the vendor will be supplying to you all the things that are necessary for the continued operation of the rent roll business, therefore paragraph 38-325(2)(a) will be satisfied. Also, as the vendor will continue operating the rent roll business up to the day of supply, paragraph 38-325(2)(b) is also satisfied. As such, the sale of the rent roll is considered to be a going concern for the purposes of GST law. The sale of a going concern will be GST-free under subsection 38-325(1) where all of the following criteria are met: • the supply is for consideration • the recipient is registered for GST, and • the supplier and the recipient agree in writing that the supply is of a going concern. In this case, the supply is for consideration, you are registered for GST and prior to settlement the contract will be altered so that you and the supplier will have agreed in writing that the supply is of a going concern. Therefore, the supply of the rent roll business to you will be GST-free. As the supply to you is not a taxable supply, you will not have made a creditable acquisition as the requirement of paragraph 11-5(b) has not been met. As you have not made a creditable acquisition, you are not entitled to an input tax credit on the purchase of the going concern (rent roll business).