Private ruling: GST and going concerns
Date of advice: 18 December 2015
Published: February 2016

Ruling: Q1: Is your supply including the sale of the Property situated at a specified location, a supply of a GST-free going concern 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: You are registered for GST. You are the registered proprietor of a site situated at a specified location (Development Site). You are currently in the process of commencing development works upon the Development Site on which you intend to construct a mixed use development comprising of the following: • residential apartments; • retail space; • serviced apartments; • offices/commercial premises; and • ancillary and associated buildings and improvements. You will enter into a Contract of Sale for the sale of certain subdivided lots to an identified purchaser (Purchaser). You have provided a copy of the draft Contract of Sale. Prior to the relevant plan of subdivision being registered, these subdivided lots will be combined into a single lot (the Property). The Property will represent the serviced apartments portion of the development. The draft Contract for Sale provides that settlement of the Property (Settlement Date) will be effected 14 days after the later of either: • the relevant plan of subdivision affecting the Property having been registered; or • the date of practical completion of specified works upon the Property. The draft Contract for Sale also provides that you will enter into an Agreement for Lease with the Purchaser and another identified party (Tenant). You have provided a copy of the draft Agreement for Lease. The draft Agreement for Lease provides that you must grant a lease in respect to the Property to the Tenant immediately prior to settlement. The draft Agreement for Lease provides that the Lease will commence immediately on being granted. You have also provided a copy of the draft Deed of Lease. The draft Contract for Sale acknowledges that the parties agree, in accordance with the Agreement for Lease, that the Vendor will grant a lease of the Property to the Tenant which will commence immediately prior to settlement. The draft Contract for Sale provides that the Property is sold subject to the Tenant's interest under the Agreement for Lease. The draft Contract for Sale acknowledges that you, as Vendor, and the Purchaser agree to treat the sale of the Property as a supply of a going concern. The draft Contract for Sale you and the Purchaser warrants that each party is registered or required to be registered up to and including the Settlement Date. The draft Contract for Sale you warrant that you: • will carry on the enterprise constituted by the leasing of, or agreement to lease, the Property until settlement; and • will supply all things necessary for the continued operation of the enterprise constituted by the Property and the benefit of the Agreement for Lease. In accordance with the draft Contract for Sale, consideration for the sale is a specified amount (excluding GST). The Reference Schedule to the draft Deed of Lease provides that the term of the lease is 5 years (pending confirmation by the Tenant). The Reference Schedule also provides for a base rental amount per annum with rent payable in equal monthly instalments.

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

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Subsection 38-325(2) provides that for GST purposes, 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 part of a larger enterprise carried on by the supplier). 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 application of the going concern provisions for GST purposes. | Detailed Reasoning - Identified enterprise: Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2). In this case, given the facts provided we consider you will be carrying on an enterprise of leasing (the identified enterprise) being activities done 'on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property'. As such the requirements under paragraphs 38-325(2)(a) and 38-325(2)(b) must be satisfied in relation to the identified enterprise for there to be a supply of a going concern. We note that the leasing enterprise identified as the subject of the potential going concern may be part of a larger enterprise being carried on in regard to the activities relating to the Development Site. | Detailed Reasoning - Supply of all things necessary for the continued operation of an enterprise: Paragraph 107A of GSTR 2002/5 states in part that 'where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenant or tenants is all that is required to satisfy paragraph 38-325(2)(a)'. Paragraph 108 continues providing that in respect of an enterprise consisting solely of the leasing of property, all of the things that are necessary for the continued operation of the enterprise include the supply of the property and the covenants. In this case the Contract for Sale provides that the Property is sold subject to the Tenant's interest under the Agreement for Lease. Pursuant to this document the parties acknowledge that the Vendor and the Purchaser entered into the Agreement for Lease with the tenant on or before the Day of Sale, and that the Property is sold subject to the tenant's interest under the Agreement for Lease. As such we consider paragraph 38-325(2)(a) will be satisfied. Furthermore, in accordance with the Contract for Sale, you warrant that you will carry on the enterprise constituted by the leasing of the Property until settlement. As all the requirements for subsection 38-325(2) will be satisfied, the supply of the Property will be a going concern for GST purposes. | Detailed Reasoning - GST-free supply of a going concern: Subsection 38-325(1) provides that the sale of a going concern will be GST-free if: • the supply is for consideration; and • the recipient is registered or required to be registered; and • the supplier and the recipient have agreed in writing that the supply is of a going concern. In this case the Contract for Sale contains terms and conditions which will cause the criteria of subsection 38-325(1) to be satisfied. | Detailed Reasoning - Conclusion: Your supply is a supply of a GST-free going concern pursuant to section 38-325 of the GST Act.