Private ruling: GST and the supply of a going concern
Date of advice: 4 September 2019
Published: November 2019
Ruling period: 1 April 20XX to 30 June 20XX

Ruling: Q1: Is the sale of the Property by the Trust a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. The sale of the Property by the Trust is a GST-free supply of a going concern under section 38-325 of the GST Act.

Relevant facts and circumstances: The Trust carries on a business of renting free standing small commercial sheds (the Property) The Trust obtained development approval for the Property to build a set of residential townhouses on the land The Trust entered into a contract with the buyer, who is registered for GST, for the sale of the Property. The Trust and the buyer agreed in the contract that the sale is a supply of a going concern under the GST Act At the time of signing the original contract for the sale of the Property, all sheds were occupied under continuing monthly leasing arrangements About 3 months prior to settlement, the Trust gave the tenants 3 months' notice of the due settlement date informing them they can remain in the shed and that it may be longer depending on pre-sales. Consequently, several of the tenants vacated the premises without notice. The tenants of other Sheds left furniture and other possessions on the premises. The tenant of Shed x gave a one month's notice and shed xx required repairs. At the time of settlement, two (2) of the sheds were occupied. The Trust found out the tenants of several Sheds have vacated their sheds only about two weeks prior to settlement Within one week of finding out about the tenants leaving the premises, the Trust placed advertisements for rental for monthly tenancy. The buyer was aware of the Trust advertising the sheds for rental. On settlement, the Trust and the buyer rescinded the original contract of sale. The parties entered into another contract of sale on the same day, with settlement to occur on that day. It was agreed in the contract that the sale is a supply of a going concern under the GST Act. The main change between the two contracts of sale was a new special condition which provides that, if the sale was not a supply of a going concern, the Trust will apply the margin scheme to calculate its GST liability on the sale. By attornment notices dated the same day as the settlement date, the Trust assigned the existing lease agreements on the occupied sheds to the buyer.

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

Reasons for decision: Summary: Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) an entity makes a taxable supply if it makes a supply for consideration in the course of carrying on its enterprise, the supply is connected with the indirect tax zone and the entity is registered or required to be registered for GST. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. The most relevant provision in the GST Act about GST-free supplies is section 38-325, which is about a supply of a going concern. Under section 38-325 of the GST Act, a 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. A supply of a going concern is defined as 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. Goods and Services Tax Ruling GSTR 2002/5 set out the Commissioner's view about when a supply of a going concern is GST-free. Relevantly, GSTR 2002/5 states: · At paragraph 141 - the supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership · At paragraph 142 - a supply will not be a 'supply of a going concern' where, on the day of the supply, the activity carried on by the enterprise has ceased · At paragraph 149 - the term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply during the period of commencement or termination of an enterprise. · At paragraph 150 - a supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating · At paragraph 151 - the activity of leasing a building which has previously been leased to a tenant remains an 'enterprise' of leasing during the period of temporary vacancy when a new tenant is being actively sought by the building owner. | Detailed Reasoning - Application of the law to the Trust: The sale of the Property by the Trust is a taxable supply because it satisfies all of the elements of section 9-5 of the GST Act unless it is the supply of a going concern under section 38-325 of the GST Act. The supply of the Property by the Trust is GST-free under section 38-325 of the GST Act if the Trust carried on the enterprise on the day of the supply. We consider that, even though on the day of the supply some of the sheds were vacant, the Trust continued to operate its leasing enterprise. The Trust has actively marketed those vacant sheds for rental. Therefore, the sale of the Property is a supply of a going concern under section 38-325 of the GST Act. As such, the sale of the Property is GST-free.