Private ruling: GST and supply of a GST-free going concern
Published: March 2012

Ruling: Q1: Is the sale of the property (Property) by you a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. You are a company registered for GST. You are a member of a GST group. You are undertaking a sale of property. The Property encompasses a business and car park. You are the vendor (Vendor). The purchaser is a company as trustee for a trust (Purchaser). Both the Vendor and Purchaser are registered for GST. The purchase price is nominated exclusive of GST as the parties agreed that the sale of the Property was a GST-free supply of a going concern. You have supplied a copy of the contract (Contract) for the sale of the Property which has only been executed by the Purchaser. The Property is sold subject to a Lease defined to be the lease entered into in accordance with clauses within the Contract. The contract between the parties contains GST clauses relevant to the sale of a GST-free going concern. The sale includes the supply of a leasing business (Enterprise). In accordance with the requirement of the Agreement, the Vendor and Lessee are required to formalise the existing leasing arrangement by signing a lease which takes effect on the day before Completion Day which is the settlement day. The Agreement was executed in 2010. The settlement took place in 2011 subject to various terms including the assignment of the Property lease.

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 38-325. | Subsection 38-325(1). | Paragraph 38-325(1)(a). | Paragraph 38-325(1)(b). | Paragraph 38-325(1)(c). | Subsection 38-325(2). | Paragraph 38-325(2)(a). | Paragraph 38-325(2)(b).

Reasons for decision: Detailed Reasoning - Taxable Supply: Under section 9-5 of the GST Act, an entity makes a taxable supply if: · it makes a supply for consideration; and · the supply is in the course or furtherance of an enterprise that it carries on; and · the supply 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 supply satisfies the positive limbs of section 9-5 of the GST Act and raises the issue of whether the supply is a GST-free supply of a going concern. | Detailed Reasoning - GST-free supply: The supply will be a GST-free supply of a going concern where the requirements of section 38-325 of the GST Act are met. Goods and Services Tax Ruling GSTR 2002/5 discusses a 'supply of a going concern' for the purposes of section 38-325 of the GST Act and when the 'supply of a going concern' is GST-free. For a supply to be a GST-free supply of a going concern under section 38-325 of the GST Act: · the supply must be made under an arrangement under which: · 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 (whether or not as part of a larger enterprise) until the day of the supply; · the supply must be for consideration; · the recipient of the supply must be registered or required to be registered for GST; and · the supplier and the recipient must have agreed in writing that the supply is of a going concern. Subsection 38-325(2) | Detailed Reasoning - Supply under an arrangement: The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under paragraph 38-325(1)(c) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. (Refer to paragraphs 19 and 20 of GSTR 2002/5.) The Contract provides for the supply of a leasing enterprise and all that this entails (see below). In our view, the Contract constitutes an arrangement that satisfies the requirements of subsection 38-325(2) of the GST Act. | Detailed Reasoning - Supplier supplies all things necessary for the continued operation of an enterprise: Paragraphs 38-325(a) and (b) of the GST Act provide the conditions to be satisfied in relation to an 'identified enterprise'. The term 'enterprise' is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property. The Vendor conducts the leasing activity in relation to the Property. This is the 'identified enterprise'. A 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. (Refer to paragraph 30 of GSTR 2002/5.) Clauses within the Contract provide that the sale is subject to the transfer of the lease. Settlement is conditional upon assignment of the lease to the Purchaser. Prior to settlement, the Vendor is the registered proprietor of the land, and title to the land is to be passed to the Purchaser on the Completion. Therefore, the Vendor is supplying to the Purchaser the leasing enterprise and all other things associated with the Enterprise. It is our view that all the things necessary for the continued operation of the Enterprise are being supplied under the arrangement. | Detailed Reasoning - Supplier carries on the enterprise until the day of the supply: Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be carried on, by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership (refer to paragraph 141 of GSTR 2002/5). The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier (refer to paragraph 161 of GSTR 2002/5). The enterprise carried on by the Vendor is that of leasing of the Property. The Vendor warrants that they will continue to carry on the enterprise until settlement. It is our view that the Vendor will carry on the enterprise of leasing of the Property until the Completion on which the acquisition will be made by the Purchaser. Subsection 38-325(1) | Detailed Reasoning - Supply for consideration: Paragraph 38-325(1)(a) of the GST Act requires that the supply is made for consideration. The consideration for the acquisition of the leasing enterprise is the purchase price as outlined in the Contract. We consider that the acquisition is made for consideration. | Detailed Reasoning - Recipient registered for GST: Paragraph 38-325(1)(b) of the GST Act requires that the recipient is registered or required to be registered for GST. As detailed in the Contract the Purchaser warrants that they are registered for GST and will continue to be registered for GST at completion. | Detailed Reasoning - Agreed in writing: Under paragraph 38-325(1)(c) of the GST Act, the supplier and the recipient must have agreed in writing that the supply is of a going concern. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply is a 'supply of a going concern' (refer paragraph 181 of GSTR 2002/5). The Contract sets out the conditions that must be met for the sale of the leasing enterprise to be affected. We consider that the Vendor and Purchaser have agreed in writing that the supply of the leasing enterprise is a supply of a going concern. | Detailed Reasoning - GST-free supply of a going concern: In your case, the supply meets the requirements of subsection 38-325(1) of the GST Act as: · the supply is for consideration · the recipient is registered for GST, and · under the terms of the contract, you and the purchaser have agreed in writing that the supply is a supply of a going concern. Accordingly, the supply of the Property with the lease intact is a GST-free supply of a going concern.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: GST and supply of a GST-free going concern: The sale of the Property with the transfer of the lease is a GST-free supply of a going concern as the sale meets all the requirements of section 38-325 of the GST Act.