Private ruling: GST and the supply of a going concern
Date of advice: 23 April 2021
Published: June 2021

Ruling: Q1: Is the supply of the Property by the Vendor to the Purchaser under the Contract of sale (the Contract) 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) where: (a) the entire Property is leased/licenced at the Completion date (Settlement Date); or alternatively; (b) part of the Property is subject to an ongoing lease at Settlement Date? | A1: Yes. the supply of the Property by the Vendor to the Purchaser under the Contract is a GST-free going concern under section 38-325 of the GST Act: (a) where the entire Property is leased at Settlement Date, or alternatively (b) to the extent that the Property is subject to an ongoing lease at Settlement Date. It follows that to the extent that the sale of the Property relates to unleased premises the supply will not be GST-free supply of a going concern. | Q2: Is the Purchaser entitled to an input tax credit for the acquisition of the Property that is made under the Contract? | A2: Following our answer to question 1, to the extent that the supply of the Property by the Vendor is a GST-free going concern to the Purchaser, the acquisition by the Purchaser is not that of a 'taxable supply' to it. Consequently, no entitlement to an input tax credit can arise. However, to the extent that the acquisition by the Purchaser is that of a taxable supply to it, the Purchaser may be entitled to an input tax credit where the acquisition satisfies the requirements of section 11-15 of the GST Act. Please refer to our reasons for decision for further information.

Relevant facts and circumstances: The Purchaser has entered into a Contract of sale (Contract) to sell a commercial property (the Property) to the Purchaser. The Property is held on a single title and is made up of numerous shops. When the contracts where exchanged, some shops were leased to tenants. However one shop had been used by the Vendor to run their retail business until a few months before the Contracts were exchanged. This shop was vacated prior to the Contract and the Vendor has been actively marketing this shop for a new tenant. Under the terms of the Contract the Vendor and Purchaser have agreed that the sale of the Property is a supply of a going concern if the entire Property (i.e. all the shops) is wholly leased as at settlement of the Contract. If any part of the Property remains not subject to a lease at the time of settlement the parties agreed that the part of the entire premises which was leased would be a supply of a going concern with the remaining parts (i.e. the not leased shop) subject to GST. The purchaser provides consideration under the Contract. Both the Vendor and Purchaser are registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5 | A New Tax System (Goods and Services Tax) Act 1999 38-325 | A New Tax System (Goods and Services Tax) Act 1999 11-5 | A New Tax System (Goods and Services Tax) Act 1999 11-15

Reasons for decision: Summary: Section 38-325 of the GST Act provides the requirement which need to be satisfied in order to make a GST-free supply of a going concern and 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). (Note: the * refers to a term defined in section 195 of the GST Act) In this case it is accepted that the requirements of paragraph 38-325(1)(a) and (b) of the GST Act are satisfied. Therefore, what remains to be considered in whether paragraph 38-325(1)(c) of the GST Act and subsection 38-325(2) of the GST Act are met. Goods and Services Tax Ruling GSTR 2002/5: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explains what is a 'supply of a going concern' for the purposes of Subdivision 38-J of the GST Act'. It also explains when the 'supply of a going concern' is GST-free for the purposes of the Subdivision. Paragraph 151 of GSTR 2002/5 explains 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. In addition paragraphs 178 to 184 provides discussion regarding 'agreed in writing' and at paragraph 181 states: 181. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a 'supply of a going concern'. In this case you have asked the Commissioner to consider whether the supply of the Property will be GST-free where: (a) the entire Property is leased at the Settlement Date of the contract, (Arrangement 1) or alternatively (b) only part of the Property is lease, and the remaining part is not subject to a lease/licence at the Settlement Date but is actively advertised for lease by the Vendor (Arrangement 2). According to the view in paragraph 151 the Commissioner accepts that in both Arrangement 1 and Arrangement 2 the Vendor is conducting an enterprise of leasing at the Settlement Date in respect of the entire Property. This is notwithstanding that in the case of Arrangement 2 the Property consists of a vacant shop, which is advertised for tenancy. Further as the Vendor carries on, or will carry on, the enterprise until the day of the supply it is accepted that the requirements of subsection 38-325(2) are met. However, although the Vendor is conducting a leasing enterprise in respect of the entire Property at Settlement Date, pursuant to the terms of the Contract the parties do not have a written agreement that, in the case of Arrangement 2, the supply of uneased shops is a GST-free going concern. Relevantly the Contract provides that where the entire Property is subject to a lease/licence the parties agree that it will be a supply of a going concern that is GST- free. However, in the case where any part of the Property is not subject to a lease the Contract provides that: • Consequently, in the case of: - meet the requirements of section 38-325 of the GST Act and is a supply of a going concern that will be GST-Free to the extent that there is a lease or licence over the Property, and - will not meet the requirements of section 38-325 of the GST Act to the extent that there is no lease or licence over the Property as paragraph 38-325(1)(c) of the GST Act is not satisfied To be entitled to an input tax credit you must make a creditable acquisition. Under section 11-5 of the GST Act it states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. In the case of Arrangement 1 the acquisition by the Purchaser will not meet paragraph 11-5(b) of the GST Act. On this basis the Purchaser will not make a creditable acquisition and no entitlement to an input tax credit will arise. Similarly, in the case of Arrangement 2, to the extent the acquisition is not a taxable supply to the Purchaser no entitlement to an input tax credit will arise. However, to the extent the acquisition is a taxable supply to the Purchaser an input tax credit may arise where the acquisition satisfies the requirements of section 11-15 of the GST Act.

the supply will only be a going concern that is GST-Free for the purposes of section 38-325 of the GST Act on any part that is leased/licence, and | a taxable supply is respect of the Components that is not lease/licenced. | Arrangement 1 the supply of the Property will meet the requirements of section 38-325 of the GST Act and is a supply of a going concern that will be GST-Free. | Arrangement 2 the supply will: