Private ruling: GST free sale of a going concern
Date of advice: 12 October 2018
Published: December 2018
Ruling period: 1 September 2018 to 31 December 2018
Date scheme commenced: 1 September 2018

Ruling: Q1: Is the supply of the land by the vendor 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. The supply of the land and associated rights and contracts by the vendor is a GST-free supply of a going concern.

Relevant facts and circumstances: ● The vendor is the current owner of the land and has entered into a development agreement with the original developer to develop the land. ● The vendor is registered for GST. ● The vendor entered into a development agreement some years ago with the original developer in relation to the construction of a mixed use development on the land. Pursuant to the development agreement, the original developer was appointed by the vendor to provide development management services and project management services. ● The primary obligations of the vendor under the development agreement include: ● making the land available to the original developer for the construction of the development and carrying out of the project; ● the rendering of assistance to the original developer where reasonably necessary; ● the ability to step into the position of the original developer under the building contract if the development agreement is terminated; and ● the engagement of development management services from the original developer in order to progress the development. ● The development will comprise multiple residential apartments, retail and commercial suites. ● The requisite development approval and planning permits have been obtained and construction is under way. ● To date, the majority of residential and commercial pre-sale development contracts have been executed and the unsold lots continue to be marketed for sale with the assistance of a real estate agent. ● The vendor has accepted an offer from the purchaser to acquire its interest in the development. ● Completion is due, pursuant to a contract for the sale and purchase of land. The parties have agreed that the supply from the vendor to the purchaser is a GST-free supply of a going concern. ● The terms of the contract for sale relevantly provide amongst other things that the key requirements of section 38-325 of the GST Act will be met as the vendor will supply all things necessary under the suite of agreements; it will continue its operation until the date of the completion of the sale. Also the purchaser is registered for GST and will remain so registered. ● In addition, the contract for sale requires the purchaser, to prepare a private ruling application, requesting confirmation from the Commissioner that the sale of the land is GST-free on the basis it is the supply of a going concern pursuant to section 38-325 of the GST Act. ● The sale contract terms provide that upon completion the vendor assigns to the purchaser whatever right, title and interest it has in each of the off the plan pre-sale contracts entered into by the vendor prior to the date of this contract as well as any new off the plan sales made prior to completion. ● The land is being sold subject to the development agreement with the original developer. This will be achieved pursuant to the terms and conditions of certain documentation executed on the same date as the contract for sale. ● Under the terms of the arrangement, the vendor agrees to convey its interest and obligations in the development agreement to the purchaser. ● The purchaser has acknowledged that it is currently registered for GST, and has agreed that it will continue to be registered for GST up to and including the day of the supply of the enterprise by the vendor. ● Up until the time of completion, the vendor has agreed to comply with all of its obligations under the relevant development contracts pursuant to the sale contract, and has further agreed to carry on the enterprise up until the day of the supply of the enterprise to the purchaser. ● The vendor and the purchaser have mutually agreed that the supply of the land made in accordance with the contract for sale, as well as other terms of the contract conveying various interests and obligations under the development agreement to the purchaser, comprise all things necessary for the continued operation of the enterprise, and constitute a supply of a going concern pursuant to section 38-325 of the GST Act.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 9-5; 9-20; 195-1; 38-325.


Subject: GST free sale of a going concern: Based on the information you provided, under section 38-325 of the GST Act your 'supply of a going concern' will be GST-free because, on settlement date, you will be: | ● supplying all of the things that are necessary for the continued operation of the current enterprise, | ● to a purchaser who is registered for GST, for agreed consideration, | ● under a contract that confirms your mutual written agreement the sale is a supply of a going concern and | ● having carried on the current enterprise until the day of the supply (settlement date). | Note: If changes to your arrangements occur all of the requirements of section 38 of the GST Act may no longer be satisfied. The sale of the property would then not be a GST-free supply of a going concern, and would become a taxable supply subject to GST.