Private ruling: GST and sale of a going concern
Published: January 2015

Ruling: Q1: Is the sale of the property a 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: Entity A (the Vendor) and Entity B are related bodies corporate. Entity B is the representative member of a GST group and the Vendor is a member of that GST group. The Vendor is at all relevant times conducting an enterprise of acquiring and developing sites and leasing the developed sites to entity B. The Vendor acquired the property for use in this enterprise. After it acquired the Property, the Vendor engaged entity B to project manage the development of the Property and upon the completion of the development, the Vendor will lease the property to entity B. The terms of this arrangement are documented in the Agreement to Develop and Lease (Development and Lease Agreement). Development approval has been obtained and construction has commenced on the Property. The Vendor has entered into a Contract of Sale (the Contract) to sell the Property to the Purchaser. The Contract specifies the purchase price payable for the Property. Settlement of the Contract was completed and a transfer of the land comprised in the Property has been lodged for registration. The Purchaser is not a member of the GST group represented by entity B. Pursuant to the Contract, the Property is sold subject to the Development and Lease Agreement and with the requirement for a novation of the Development and Lease Agreement to occur at settlement and as a condition of completion. The Vendor, entity B and the Purchaser entered into a Deed of Novation - Agreement to Develop and Lease (Deed of Novation). The Deed of Novation has taken effect on completion of the Contract and the Purchaser is now a party to the Development and Lease Agreement, in place of the Vendor. On completion of the development works under the Development and Lease Agreement, the Purchaser as owner of the land will grant a lease of the land to entity B, as required by the Development and Lease Agreement. The sale includes all of the things necessary for the continued operation by the Purchaser of the Vendor's enterprise in respect of the Property, including: • All government authorities, permits, applications and approvals relating to the enterprise; • The assignment and/or transfer of all contracts relating to the enterprise, including all leases or agreements for lease in respect of the Property, development agreements and project management agreements; and • All books, reports, plans, drawings and other documents that relate to the operation of the enterprise. The Purchaser will continue to engage entity B to carry out the development works on the Property after the day of settlement of the Contract pursuant to the Agreement to Development and Lease. The Contract states that the Vendor and the Purchaser agree that the supply of the Land by the Vendor to the Purchaser is a supply of a going concern for the purposes of the Act. Under the Contract, the Vendor that Purchaser agreed that the supply of the Land • is for consideration • is made under an arrangement where the Vendor supplies to the Purchaser all of the things that are necessary for the continued operation of an enterprise; and • the Vendor will carry on the enterprise on the Land up to the Date of Settlement The Contract provides that the Purchaser warrants that is registered for GST as at the date of this Agreement and will continue to be registered for GST up to and including the Date of Settlement.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 : Section 9-20 | Subsection 38-325(1) | Subsection 38-325(2) | Section 195-1

Reasons for decision: Summary: In this reasoning, all references are to the A New Tax System (Goods and Services Tax) Act 1999. Subsection 38-325(1) provides that the supply of a going concern is GST-free if a) the supply is for consideration 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. Based on the information supplied, the requirements of subsection 38-325(1) have been satisfied. Therefore, where the supply meets the requirements of subsection 38-325(2) it will be a GST-free supply of a going concern. Subsection 38-325(2) provides that 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 a part of the larger enterprise carried on by the supplier). Identified enterprise Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a supply of a going concern GST-free ? provides guidance on the requirements to be met for a supply to be a GST-free supply of a going concern. Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2). The term 'enterprise' is defined in section 9-20 of the GST Act and includes, amongst other things, 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. On the facts provided, the Vendor is carrying on a development and leasing enterprise as the Vendor acquires and develops sites and leases the developed sites to entity B. | Detailed Reasoning - Supply of all things necessary for the continued operation of an enterprise: Paragraph 72 of GSTR 2002/5 explains that the things that are necessary for the continued operation of the enterprise will depend on the nature of the identified enterprise being carried on. Pursuant to the Contract of Sale and the Agreement to Develop and Lease, the Vendor has agreed that it will supply to the Purchaser all of the things that are necessary for the continued operation of the enterprise, including: • Title to the Property; • All government authorities, permits, applications and approvals relating to the enterprise; • The assignment and/or transfer of all contracts relating to the enterprise, including all leases or agreements for lease in respect of the Property, development agreements and project management agreements; and • All books, reports, plans, drawings and other documents that relate to the operation of the enterprise. In accordance with the Contract, the Vendor has sold the land and novated its obligations and entitlements in the Development and Lease Agreement to the Purchaser. On the basis of the information provided, the Vendor has supplied to the recipient 'all things necessary for the continued operation of the enterprise' for the purposes of paragraph 38-325(2)(a). | Detailed Reasoning - Supplier carries on enterprise until day of supply: The Contract provides that the Vendor will carry on the enterprise on the Land up to and including the Date of Settlement (the day of supply). On this basis, the development and leasing enterprise has been operated up to the day of the supply, pursuant to paragraph 38-325(2)(b). Accordingly, the Vendor will satisfy paragraphs 38-325(2)(a) and (b). As all the requirements for section 38-325 of the GST Act have been satisfied, the supply of the property is a GST-free supply of a going concern.