Private ruling: GST and supply of a going concern
Date of advice: 9 April 2020
Published: May 2020
Ruling period: 1 July 20XX till quarter ending 30 June 20XX
Date scheme commenced: 1 April 20XX

Ruling: Q1: Is the proposed sale by the Fund to the Purchaser of the Commercial Property, the 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. If the proposed sale of the Commercial Property by the Fund to the Purchaser, which is sold subject to the signed lease agreement proceeds, it will satisfy the requirements of a going concern. This is on the basis that the Purchaser becomes registered for GST by the day of the supply. In particular section 38-325 of the GST Act states: (1) 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; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. (2) 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). In this case the supply of the property by the Fund is made for consideration, the Purchaser will be registered for GST on the day of supply and the parties to the contract of sale have agreed in writing that the supply is of a going concern. Therefore the issue requiring consideration is whether the provision of the Property, which is sold subject to the lease agreement, satisfies subsection 38-325(2) of the GST Act. Goods and Services Tax Ruling GSTR 2002/5: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explains at paragraph 151 that where a building has not previously been leased to a tenant, but is being actively marketed, an 'enterprise of leasing' is not operating until the activity of leasing actually commences. However the activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building. Accordingly, in this case as there is a lease agreement in place between the Fund and the Tenant, the enterprise of leasing is taken to have commenced. As the Fund is continuing to carry on this enterprise until the date of the supply it is taken to satisfy subsection 38-325(2) of the GST Act. On this basis the supply of the Property satisfies the requirements of a going concern

Relevant facts and circumstances: In February 20XX the Fund was registered with an ABN and GST. The Fund acquired the Commercial Property (Property) for the purpose of using the premises to conduct its own business operations. However it was subsequently determined that the premises would not be used by the Fund for this purpose and instead the property would be made available for lease. A real estate agent was appointed to find a tenant and the Property was advertised for lease. Given the physical condition of the premises the Fund made plans to conduct development works on the Property to improve its suitability for lease. In late 20XX, the appointed real estate agent sourced a potential tenant, who expressed an interest in leasing the premises. At this time the Fund had started some internal demolition works which did not require a building permit. The sign advertising the property on the premises remained on display and wasn't stamped "leased" until mid-20XX when the Fund entered into a signed lease agreement. In early 20XX the Fund submitted an application to council for development works to be approved on the Property and this was approved within the month. After works had commenced a potential tenant asked the Fund to stop certain development activities as the work being completed where not suitable for their purpose. On mid 20XX the Fund and an Entity A (Tenant) entered into a lease agreement (Lease Agreement). The terms of the Lease Agreement provide that each party will be responsible for agreed works being completed, and once a "Certificate of Final Inspection" is completed the lease will commence. No works have commenced under the Lease Agreement. Pursuant to the terms of the Lease Agreement the lease will be for a period of 5 years and commences from the date of the "Certificate of Final Inspection". At this time the date of Certificate of Final Inspection has not been reached therefore tenant occupancy and lease payments have not commenced. The Fund is proposing to enter into a contract of sale (Contract) with Entity B (Purchaser) for the sale of the Property. A copy of the proposed contract has been provided as part of this request. Under the Contract the box which provides that the sale of is a going concern has been checked with an "X". The terms of the Contract set out that the sale is subject to a lease for a term of 5 years and 7 days from the issue of a Certificate of Final Inspection with [4] options to renew, each of [5] years. The Fund has advised that the Purchaser will be registered or required to be registered for GST by the time the Contract has reached settlement.

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