Private ruling: goods and services tax (GST) and sale of a property
Published: May 2012

Ruling: Q1: Will GST be payable on your sale of the property? | A1: No.

Relevant facts and circumstances: You are registered for GST. You own a property comprising a number of warehouses at a location in Australia. You have leased out the property for a number of years. You have exchanged contracts for the sale of the property and are due to settle on the sale on a certain date. The sale was subject to a lease. The lessee indicated that it does not wish to renew or extend the lease and has vacated the property. You are actively advertising the property as being available for lease and you will continue to do so until settlement. The contract provides that you warrant that you will carry on the going concern until the date of sale. The contract of sale provides that the purchaser warrants that it is, or prior to settlement will be, registered for GST. The contract of sale, which was signed by both parties, provides that the sale of the property will be a supply of a going concern.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c) | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision: Summary: GST will not be payable on your sale of the property, as the sale will be a GST-free supply of a going concern. | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: You make a taxable supply if: · you make the supply for *consideration; and · the supply is made in the course or furtherance of an *enterprise that · you *carry on; and · the supply is *connected with Australia; and · you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (*Denotes a term defined in section 195-1 of the GST Act) You will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. You will supply the property, by way of sale, for consideration and in the course or furtherance of your leasing enterprise. Additionally, your sale of the property will be connected with Australia as the property is located in Australia and you are registered for GST. There are no provisions in the GST Act under which your sale of the property will be input taxed. Therefore, what remains to be determined is whether your sale of the property will be GST-free. A sale of a going concern is GST-free where the requirements of subsection 38-325(1) of the GST Act are satisfied. Subsection 38-325(1) of the GST Act states: 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. Subsection 38-325(2) of the GST Act defines 'supply of a going concern'. It states: 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 carried 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). Paragraph 151 of Goods and Services Tax Ruling GSTR 2002/5 discusses the situation where a property was previously leased to a tenant and a new tenant is being actively sought by the owner during the period of temporary vacancy. It states: 151. The activity of leasing a building which has previously been leased to a tenant remains an enterprise of leasing for the purposes of section 9-20 of the GST Act during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, 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. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building. You have exchanged contracts for the sale of the property and are due to settle on the sale on a certain date. You carried on a leasing enterprise from the property. You previously leased out the property. You are actively seeking a new tenant during a period of temporary vacancy and will continue to do so until the time of settlement. Therefore, we consider that you will supply all of the things necessary for the continued operation of a leasing enterprise and that you will continue to operate this enterprise up to the time of sale. Hence, you will satisfy the requirements of paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act. Therefore, your sale of the property will be the supply of a going concern. You will supply the property, by way of sale, for consideration. Hence, the requirement of paragraph 38-325(1)(a) of the GST Act will be satisfied. The purchaser will be registered for GST. Hence, the requirement of paragraph 38-325(1)(b) of the GST Act will be satisfied. You and the purchaser have agreed in writing that your sale of the property will be the supply of a going concern. Hence, the requirement of paragraph 38-325(1)(c) of the GST Act will be satisfied. As your sale of the property will be a supply of a going concern and the requirements of subsection 38-325(1) of the GST Act will be satisfied, you will make a GST-free supply of a going concern. Therefore, your sale of the property will not be a taxable supply. Hence, GST will not be payable on your sale of the property.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.