Private ruling: GST and the supply of a going concern
Date of advice: 2 February 2016
Published: March 2016

Ruling: Q1: 1. Is the sale of the "Property" (as described below) by a third party on behalf of a trust to a Purchaser a GST-free supply of a going concern? 2. If the answer to question one is 'yes', will the sale of the Property remain a GST-free supply of a going concern despite the surrender of some of the leases prior to the sale of the Property being settled and leases expiring after settlement of sale of the Property? | A1: 1. Yes, the sale of the "Property" by a third party on behalf of a trust to a Purchaser is a GST-free supply of a going concern. 2. Yes, the sale of the Property will remain a GST-free supply of a going concern despite the surrender of the lease prior to the sale of the Property being settled and leases expiring after settlement of sale of the Property.

Relevant facts and circumstances: A third party other than the trustee of a trust is the registered owner of a number of commercial properties. These properties will be referred to as 'the Property' in this ruling. The trust is registered for GST. Currently the Property is leased to lessees. These constitute the lease of 100% of the Property. Each lease is on commercial terms between parties acting at arms' length. Each of the leases is currently in effect with the respective lessees occupying the property. The third party, on behalf of the trust has agreed to sell the freehold interest in the Property to another entity (Purchaser) under a sale agreement (Sale Agreement). Whilst none of the Leases will expire before settlement, or completion of the Sale Agreement, following completion of the Sale Agreement, some of the leases will be surrendered pursuant to a deed of surrender. The Purchaser is registered for GST and will remain registered after completion of the Sale Agreement. The Purchaser under the Sale Agreement has no interest in any of the leases. None of the lessees under the leases is the purchaser of the Property under the Sale Agreement. The third party (on behalf of the trust) and the Purchaser have agreed in writing that the sale of the Property is a supply of a going concern.

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

Reasons for decision: Detailed Reasoning - What is a supply of a going concern?: Subsection 38-325 (2) of the GST Act defines a supply of a going concern as follows: 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 day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). (terms marked with asterisks (*) are defined in section 195-1 of the GST Act) | Detailed Reasoning - Paragraph 35-325(2)(a) of the GST Act: Supplier The third party is selling the Property on behalf of the trust. Accordingly, in this case the supplier for GST purposes is the trust. Recipient The recipient is the Purchaser. Enterprise We agree with the submission that the enterprise that is being carried on by the third party on behalf of the trust is that of a leasing enterprise. All things necessary for the continued operation of the enterprise Given that under the Sale Agreement, all the leases are assigned to the Purchaser, we accept that the supplier has supplied everything that is necessary for the continued operation of the leasing enterprise to the Purchaser. | Detailed Reasoning - Paragraph 35-325(2)(b) of the GST Act: The third party (on behalf of the trust) has been carrying on the leasing enterprise and will be carrying on this enterprise until the day of supply (which is the date of settlement). Accordingly as the requirements of both paragraphs of subsection 35-325(2) of the GST Act are satisfied, the sale of the Property is a supply of a going concern. | Detailed Reasoning - When is a supply of a going concern GST-free?: Subsection 38-325(1) of the GST Act states the following: The *supply of a going concern is GST-free if: the supply is for *consideration; and (a) the *recipient is *registered or *required to be registered; and (b) the supplier and the recipient have agreed in writing that the supply is of a going concern. Given that the sale of the property is for a sale price, the Purchaser is registered for GST and the third party (on behalf of the trust) and the Purchaser have agreed in writing that the supply is of a going concern, the requirements of subsection 38-325(1) of the GST Act are also satisfied and as such the sale of the Property is a GST-free supply of a going concern. | Detailed Reasoning - Question - 2: The fact that the third party has entered into a deed to surrender some of the leases and the fact that the leases will expire after the date of settlement will not change the outcome that the sale of the Property will be a GST-free supply of a going concern. This is because the actual enterprise of leasing will still be operating on the day of the supply and all of the requirements under section 38-325 of the GST Act will be satisfied in regards to the enterprise.