Private ruling: GST and the supply of property as a going concern
Date of advice: 2 March 2022
Published: May 2022
Date scheme commenced: The date of issue of this private ruling

Ruling: Q1: Is the sale by the taxpayer of her one third interest in the property a taxable supply? | A1: No.

Relevant facts and circumstances: You are a part owner of real property (the property). The property is owned jointly with family members, as tenants in common with each having an interest of one third. The property is comprised of two separate spaces; one commercial and one residential which are leased separately to different tenants. The tenancies and leases are managed by a real estate agent. The owners receive ordinary income and are registered for GST as a tax law partnership. The partnership has been collecting GST from the commercial tenant and claiming a relevant apportioned amount of GST paid as input tax credits. You have exchanged a Contract of Sale to dispose of your one third interest to the purchasers. You and the purchasers have agreed to amend the terms of the contract in respect of GST, if needed. You and the purchasers are acting at arm's length in this transaction. You do not have an ABN and are not registered for GST. The intended tax law partnership consisting of the purchasers and the continuing two tenants in common will be registered for GST. The vendor and purchasers will have a written agreement that the sale is the supply of a going concern.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-325 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65

Reasons for decision: Summary: Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The supply of existing residential premises is input taxed. Therefore, there are no GST implications for you on this aspect of the sale. | Detailed Reasoning - Commercial premises: In paragraph 63 of Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property (GSTR 2004/6) we express our view that in all cases in which a tax law partnership carries on a leasing enterprise, that enterprise involves the interests of all the co-owners. A co-owner may sell an interest in property to a new co-owner. If the property continues to be leased, this will give rise to a new tax law partnership of the remaining co-owner and the new co-owner. If the new partnership carries on the enterprise, it is formed when the new co-owner enters into an agreement to acquire an interest in the income producing property. If the property or an interest in the property is sold, the supply of that property or the interest in the property may be a taxable supply if the requirements of section 9-5 are met or may be the supply of a GST-free going concern if the requirements of section 38-325 are met. The supply of a going concern is GST-free if the requirements of subsection 38-325(1) are met. Those requirements are: • the supply is for consideration; and • the recipient of the supply is registered or required to be registered; and • the supplier and the recipient have agreed in writing that the supply is of a going concern. We consider that an enterprise partnership can make a supply of a going concern. The partnership makes a supply of a going concern under subsection 38-325(2) if the supply is made under an arrangement under which: • the partnership supplies to the recipient all of the things necessary for the continued operation of an enterprise; and • the partnership carries on or will carry on the enterprise until the day of the supply. In line with the circumstances of your client, Example 18 in GSTR 2004/6 covers the supply of a part interest in a property. Example 18: supply that is a GST-free supply of a going concern - supply by an enterprise partnership of a co-owner's interest in a leased commercial property 196. Hot Summer Properties Ltd (Hot Summer) has a 20% interest in a leased commercial property that it owns with a number of other co-owners. The co-owners operate as a syndicate and have a syndicate agreement. Under the syndicate agreement, any purchaser of an interest in the property is bound by the terms and conditions of the agreement. A tax law partnership, comprising all the syndicate members, is registered for GST as it carries on the leasing enterprise. 197. Hot Summer agrees to sell its 20% interest in the property, with all leases in place, to Tall Sky Builders Ltd (Tall Sky). As the leasing enterprise is carried on by the partnership, the supply of Hot Summer's 20% interest in the property is by Hot Summer in its capacity as partner of the partnership, that is, it is a supply by the partnership. 198. Tall Sky is bound by the syndicate agreement. When Tall Sky purchases Hot Summer's interest, a new enterprise partnership, which is required to be registered is formed. The purchase by Tall Sky is taken to be by Tall Sky as partner of the new partnership. 199. The enterprise is carried on by the old partnership until the day of supply. Hot Summer, as a partner in the old partnership, and Tall Sky, as a partner in the new partnership, agree in writing that the supply is of a going concern. 200. The requirements of subsection 38-325(1) are satisfied as the supply is for consideration, the new partnership is required to be registered for GST, and there is an agreement between the supplier and the recipient in writing that the supply is of a going concern. 201. The supply of Hot Summer's interest in the property by the partnership is a GST-free supply of a going concern under section 38 325. | Detailed Reasoning - Application to your facts: The lease of the commercial property will be in place at the time of the sale. The supply of the commercial premises is for consideration. The purchaser will form part of a new tax law partnership that will be registered for GST. The current tax law partnership and the new tax law partnership will agree in writing that the sale of the commercial property is sale of a going concern and there is a lease in place. As such, the requirements in subsection 38-325(1) of the GST Act are satisfied. Based on the above, we consider that the partnership will still carry on the leasing enterprise at the time of settlement. Thus, the requirements in subsection 38-325(2) of the GST Act will be satisfied. In conclusion, sections 38-325(1) and (2) of the GST are satisfied as the sale will be a supply of a going concern.