Private ruling: GST and supply of a going concern
Date of advice: 6 November 2023
Published: 18 December 2023

Ruling: Q1: Will the sale of the Property be a GST-free supply of a 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: The Vendor has entered into a Contract of Sale of Real Estate (the Contract) with the Purchaser for the sale of the Property. The Contract specifies the price for the sale of the Property. The Vendor is registered for GST. The Purchaser intends to register for GST prior to the date of settlement and will be registered as at the date of settlement. The Property is currently leased to another entity (the Lessee) which operates a business from the premises. The lease has expired and has since continued on a month to month basis. The Property is being sold subject to the existing lease. At settlement, the Purchaser will become the Landlord and be bound by the terms of the existing lease for the Property. The Particulars of Sale indicate that the sale of the Property is a supply of a going concern. A clause in the Contract provides that if it so specified, the Vendor and the Purchaser agree that the sale of the Property is a supply of a going concern.

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

Reasons for decision: Summary: Subsection 38-325(1) of the GST Act provides that 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 for GST; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. Subsection 38-325(2) of the GST Act further defines a supply of a going concern as a supply under an arrangement under which: (a) the supplier supplies to the recipient all of the things 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). | Detailed Reasoning - Supply under an arrangement: Paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5 explain what is meant by '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 subsection 38-325(1) 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. In this case, the Vendor entered into the Contract with the Purchaser under which the Vendor will supply the Property with the lease intact. The Contract evidences the supplies to be made under the arrangement. | Detailed Reasoning - Supplier supplies all of the things necessary for the continued operation of an enterprise: Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which the supplier must supply to the recipient all the things that are necessary to carry on the enterprise so that the recipient is put in a position to carry on the enterprise. The Vendor leases the Property from which the Lessee operates its business. The leasing enterprise is the identified enterprise for the purpose of subsection 38-352(2) of the GST Act. | Detailed Reasoning - The things which are necessary for the continued operation of a leasing enterprise include the supply of the property and the covenants.: The Vendor will supply the Property together with the leases which are all the things necessary for the purchaser to operate the leasing enterprise if it chooses; therefore, paragraph 38-325(2)(a) of the GST Act will be satisfied. | Detailed Reasoning - Supplier carries on the enterprise until the day of the supply: Paragraph 141 of GSTR 2002/5 states: 141. The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is 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. While the lease expired in 2019, it has since continued on a month to month basis. At settlement, the Purchaser will become the Landlord. These indicate that the leasing enterprise is operating and that the Vendor will carry on the enterprise until the day of the supply. Therefore, paragraph 38-325(2)(b) of the GST Act will be satisfied. | Detailed Reasoning - Subsection 38-325(1) of the GST Act: Based on the conditions specified in the Contract, all the requirements in subsection 38-325(1) of the GST Act will be satisfied as: • the sale of the Property will be for consideration; • the Purchaser intends to register for GST prior to the date of settlement and will be registered as at the date of settlement; and • the Contract provides that if the Particulars of Sale specifies that the sale of the Property is a supply of a going concern, the Vendor and the Purchaser agree that the sale is a supply of a going concern. Accordingly, the sale of the Property will be GST-free.