Private ruling: GST and the supply of a commercial premise.
Date of advice: 3 September 2018
Published: October 2018
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the sale of the commercial premises a supply of a going concern? | A1: No, it is not a supply of going concern. The supply of the premise to the other party by the vendor is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.

Relevant facts and circumstances: You own commercial premises (the premises). You currently lease the premises to another party that runs their business from the premises. The business that is undertaken in the premises is a XXXX shop. The XXXX shop that is undertaken at the premises has no connection to you. You collect rent from the business owner for their lease of the premises. The current lessee will be buying the premises from you and continue to run their business as normal. You currently hold a registered Australian Business Number. This ABN is not connected to the XXXX shop.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision: Summary: Section 9-5 of the GST Act provides that a supplier makes a taxable supply if: (a) the supplier makes the supply for consideration; (b) the supply is made in the course or furtherance of an enterprise that the supplier carries on: (c) the supply in connected with Australia; and (d) the supplier 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. Based on the information provided, your supply of the premises to the other party meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. Further, the supply of the premises is not an input taxed supply under a provision of the GST Act or a provision of another Act. Therefore, we need to determine whether the sale of the premises was a GST-free supply. GST-free supply Section 38-325 of the GST Act states: (2) 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. A supply of a going concern is a supply under an arrangement under which: (c) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and (d) 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). In order to determine whether the sale of the premises by you to the other party was a GST- free supply of a going concern, firstly it needs to be determined whether the sale was a supply of a going concern as defined in subsection 38-325(2) of the GST Act. Paragraphs 38-325(2) (a) and 38-325(2) (b) of the GST Act, set out the requirements which need to be satisfied in relation to an identified enterprise. In this case, the identified enterprise for the purposes of subsection 38-325(2) of the GST Act is the leasing enterprise that you were carrying on from the property prior to its sale. Section 9-20 of the GST Act provides that an enterprise includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property (paragraph 9-20(1)(c) of the GST Act). Therefore, you were required to supply to the other party all of the things that were necessary for the continued operation of that enterprise in order to satisfy the requirement of paragraph 38-325(2)(a) of the GST Act Goods and Services Tax Ruling GSTR 2002/5 discusses supply of a going concern for the purposes of section 38-325 of the GST Act and explains when the supply of a going concern is GST-free. Paragraphs 72 and 73 of GSTR 2002/5 provide that the term ‘necessary’ incorporates every attribute of an enterprise that is essential for the continued operation of the identified enterprise. What is necessary for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A thing is necessary for the continued operation of an enterprise if the enterprise could not be operated by the purchaser in the absence of the thing. Paragraph 80 of GSTR 2002/5 states: 80. The 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. GSTR 2002/5 provides that, generally, all of the things that are necessary for the continued operation of a property leasing enterprise include the supply of the property and the benefit of the covenants under a lease. Paragraph 108 of GSTR 2002/5 establishes the Commissioner’s view where a lessor makes a supply of real property, which happens to be the subject of the lease, to the lessee. Paragraph 108 of GSTR 2002/5 states: 108. The owner of an enterprise which consists solely of the leasing of property cannot make a 'supply of a going concern' when supplying the real property subject to the lease to the lessee. All of the things that are necessary for the continued operation of the enterprise includes the supply of the property and the covenants. The owner is not able to supply to the lessee the benefit of the covenants which are necessary for the continued operation of the existing enterprise of leasing the property. You will be selling the premises to the other party who was the lessee at the time of the supply. As outlined in paragraph 108 of GSTR 2002/5, the vendor was not able to supply to the other party the benefits of the covenants as the other party (the lessee) the benefits and covenants as the other party cannot lease the property to itself or pay rent to them self. As a result, the vendor did not supply the other party all of the things necessary for the continued operation of the leasing enterprise and the requirement of paragraph 38-325(2)(a) of the GST Act is not met. Even though the vendor satisfied the requirement of paragraph 38-325(2)(b) of the GST Act, the vendor did not satisfy the requirement under paragraph 38-325(2)(a) of the GST Act and on that basis the arrangement between the vendor and the other party is not a supply of a going concern under subsection 38-325(2) of the GST Act. We do not therefore need to discuss whether the requirement of subsection 38-325(1)(c) of the GST Act (whether the parties had agreed in writing that the supply was of a going concern) is satisfied. Consequently, the supply is not a GST-free supply of a going concern under section 38-325 of the GST Act.