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Did Entity A acquire the Property as 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)?

Yes Question 2 Is Entity A eligible to apply the margin scheme to a future supply of the Property under Division 75 of the GST Act? Answer Yes Question 3 Will the purchase price that Entity A paid to acquire the Property be its margin scheme cost base in a future supply of the Property under the margin scheme? Answer Yes

Along with the private ruling application, the following Appendences and documents have been provided and form part of the total facts: •         Appendix X - declaration pursuant to section 388-65 of Schedule 1 to the Tax Administration Act 1953 ; •         Appendix XX - a copy of the transfer of the Property to Entity A; •         Appendix XXX - historical title searches of the Property; •         Appendix XXXX - a copy of the lease; •         Appendix XXXXX - consolidated title document; and •         relevant business activity statements. Entity A acquired the Property from Entity B on XX XXX XXXX for the consideration of $X. Entity B owned the Property before XX XXX XXXX. The historic title searches show that no transfers occurred between XXXX and the date of the Property transfer. At the time of the transfer, the Property had several Torrens titles and was a commercial property subject to commercial lease. As of XX XXX XXXX, the nine titles that constituted the Property were consolidated into one title. Entity A was sold in XXXX (an entity sale not a property sale).

Entity A submitted, based on the available evidence and facts, that the supply of the Property to Entity A by Entity B on XX XXX XXXX was a GST-free supply of a going concern and that all requirements in section 38-325 of the GST Act have been met. Entity A does not possess the original or a copy of the Sale of Land Contract for its acquisition of the commercial Property on XX XXX XXXX (Sale Contract), nor does it hold any written record or agreement confirming that the Property was acquired as a going concern. Entity A has endeavoured to contact Entity B and its legal advisers on the sale in order to make the necessary enquiries but, given the sale was almost twenty years ago, Entity A has to date not been able to contact Entity B and its legal advisers. There is no evidence to support that the supply to Entity A was treated as a taxable supply as: •         Entity A claimed no input tax credit, which it would have had the supply been taxable on its acquisition from Entity B; •         considering the cashflow cost of funding the GST, it is reasonable to assume the agreement was made to treat the transaction as GST-free;

•         the standard commercial practice of corporate legal advisers who advised on this transfer is to treat the sale of leased commercial property as a GST-free going concern. The margin scheme was not used as there was no commercial rationale for such treatment for a tenanted commercial building. Entity B supplied all things necessary for the continued operation of the leasing enterprise and had carried on the identified enterprise up until the date of the supply in XXXX. A copy of the Lease Contract for the Property was granted to the lease company commencing XX XXX XXXX and ending XX XXX XXXX, with a X-period renewal option. Upon the Property transfer on XX XXX XXXX, Entity A continued to operate the leasing enterprise. Entity A provided the historical title search records of the Property showing historical leasing activities that continued after the Property transfer to Entity A. At the time of transfer, Entity A was not part of any GST group and lodged standalone business activity statements for the specified tax periods. Entity B was registered for GST from XX XXX XXXX to XX XXX XXXX; and Entity A has been registered for GST from XX XXX XXXX.

The Property is currently still a commercial property which is leased to tenants as fully taxable supplies. The Property does not qualify as residential premises within the definition of the GST Act and has never had residential use. Current and future sale Entity A proposes to sell the Property as a GST-free supply of going concern to Entity C. While Entity A will not in fact sell under the margin scheme, the questions in this ruling are relevant for the future margin scheme eligibility and cost base of the Entity C which does intend to use the margin scheme. Entity C, as it will be acquiring as a going concern, it is required to 'look back' to Entity A's margin scheme eligibility and cost base.

A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 9-10 A New Tax System (Goods and Services Tax) Act 1999 section 38-325 A New Tax System (Goods and Services Tax) Act 1999 section 195-1 A New Tax System (Goods and Services Tax) Act 1999 division 75

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise noted. Question 1 Application of relevant Law Subdivision 38-J provides that a supply of a going concern is GST-free if all requirements in section 38-325 are satisfied. Specifically, section 38-325 provides that: 38-325 Supply of a going concern (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 a part of a larger enterprise carried on by the supplier). Altogether, section 38-325 contains five conditions that must be met to qualify for the going concern concession. Condition 1 - the supply must be for consideration

The first condition is that a supply of a going concern must be for consideration. The term ' consideration ' is defined in the GST Act and means any consideration for a supply or acquisition within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition. Consideration In this case, the Transfer document shows that the Property was transferred to Entity A for the consideration of $X on XX XXX XXXX. Accordingly, the condition under paragraph 38-325(1)(a) has been satisfied. Condition 2 - the recipient is registered or required to be registered The second condition requires the recipient of the supply to be registered or required to be registered for GST under paragraph 38-325(1)(b). As Entity A has been registered for GST since XX XXX XXXX, this condition is satisfied. Condition 3 - agreement that the supply is of a going concern The third condition is set in paragraph 38-325(1)(c) and provides that the supplier and recipient must agree in writing that the supply is of a going concern. Agreed in writing The GST Act does not define the term ' agreed in writing'

, nor does it specify what form the agreement must be in. However, Macquarie Dictionary online defines the term ' agreed ' as: '...arranged by common consent: they met at the agreed time .' Section 2B of the Acts Interpretation Act 1901 defines ' writing ' as: 'includes any mode of representing or reproducing words, figures, drawings or symbols in a visible form.' The term ' agreed in writing' is discussed in paragraph 181 of Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) and it means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences 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' . The supply of a going concern written agreement does not need to be part of the actual sale and purchase arrangement, the two agreements can be separate. However, in The Trustee for the Seabreeze Estate Unit Trust and Commissioner of Taxation

[2019] AATA 1395, the Trustee was unable to obtain a full copy of the sale contract to substantiate that the sale was made under the margin scheme. Although, no direct evidence was available, the Trustee submitted that the property had been acquired on the basis that no GST was payable and no input tax credit on the purchase was claimed. The Tribunal was satisfied, on the balance of probabilities, that the property was in fact acquired under the margin scheme. Based on these facts, there is sufficient commercial and documented evidence to demonstrate that the supply of the Property was a GST-free supply of a going concern. Condition 4 - provide all necessary elements for the continued operation of an enterprise To determine whether the supply is a supply of a going concern under an arrangement, it is necessary to establish whether the supplier provided the recipient with all the things necessary for the continued operation of the enterprise and whether the supplier carried on the enterprise until the day of the supply. These are the last two conditions of section 38-325 that need to be met. Paragraph 38-325(2)(a) provides that the supplier supplies '

all of the things that are necessary for the continued operation of an enterprise '. For a supply to be the supply of a going concern under section 38-325: •         the supply must be made under an 'arrangement'; •         the supplier must supply all the things necessary for the continued operation; •         the supply must be to a single recipient; •         the meaning of ' all things necessary for the continued operation ' of an enterprise must be satisfied; and •         the meaning of ' an enterprise' must be satisfied. Supply under an arrangement The 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the supplies under the arrangement must relate to the same enterprise (the 'identified enterprise'), see paragraph 19 of GSTR 2002/5. All things necessary The term ' necessary ' incorporates every attribute of an enterprise that is essential for the continued operation of the ' identified enterprise' . What is necessary for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A ' thing

' is necessary for the continued operation of an enterprise if the enterprise could not be operated by the purchaser in the absence of the thing, see paragraphs 72 and 73 of GSTR 2002/5. Paragraph 74 of GSTR 2002/5 provide that: 74.          The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses. The emphasis is on the supplier, meaning a supply will be GST-free only if 'the supplier supplies' all things necessary for the continued operation of an enterprise to the recipient. Identified enterprise The supplier is required to carry on the identified enterprise, Paragraphs 29 and 30 of GSTR 2002/5 provide that: 29. Subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

30. Where the enterprise identified for the purpose of subsection 38-325(2) forms part of a larger enterprise, a supply is a 'supply of a going concern' when all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied. The provision of all necessary items for the continued operation of an activity within an enterprise cannot be considered a ' supply of a going concern' unless the activity itself qualifies as an ' enterprise ' under section 9-20, see paragraph 32 of GSTR 2002/5. Enterprise The term 'enterprise' is defined in section 9-20 to include an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Section 195-1 defines ' carrying on an enterprise' to include doing anything in the course of the commencement or termination of the enterprise. Paragraph 23 of GSTR 2002/5 provides that the meaning of the term 'enterprise' is wider than the meaning of the term 'business' and includes the activity of leasing that can be the subject of the 'supply of a going concern'.

In this case, Entity B operated a leasing enterprise of several commercial premises. As per the historical title search document, it shows that all premises were transferred to Entity A on XX XXX XXXX and leases continued post transfer, which evidences that Entity A was provided everything necessary to continue the leasing enterprise. Based on the evidence, all the necessary things for the continued operation of the leasing enterprise were supplied to Entity A, satisfying this condition. Condition 5 - continue or will continue to operate the enterprise until the day of the supply The fifth condition set in paragraph 38-325(2)(b) is that the supplier carries on or must continue to carry on the enterprise until the day of the supply. The provision specifically refers to ' the ' enterprise, while paragraph 38-325(2)(a) refers ' an ' enterprise. In this case 'the' enterprise is the enterprise that the supplier has carried on and intends to sell. Paragraph 75 of GSTR 2002/5 provide that: 75.  Two elements are essential for the continued operation of an enterprise:

•         the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and •         the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion. [1] Paragraph 141 of GSTR 2002/5 states: 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.

The 'day of the supply' is generally accepted to be on completion of the transfer when the supplier has done everything to satisfy the obligations under the contract or arrangement governing the supply and the recipient has assumed effective control of all of the things that are necessary for the continued operation of the enterprise, see paragraph 161 of GSTR 2002/5. The leasing history and registered leases against the lots indicates that Entity B continued to carry its leasing enterprise until the day of the supply. This was also evidenced with the Transfer document that shows the transfer of the Property and the units from Entity B to Entity A on XX XXX XXXX. The Lease Contract and the historical title search document showing the leasing history and continuity of the leases after the transfer of the Property to Entity A. Based on the fact and information provided, we accept that the supply of the Property to Entity A was a supply of a going concern. GST - Margin scheme Question 2 Is Entity A eligible to apply the margin scheme to a future supply of the Property under Division 75 of the GST Act? Application of relevant Law

Subsection 75-5(1) provides that an entity may apply the margin scheme on a taxable supply of real property, if the entity and the recipient have agreed in writing that the margin scheme is to apply. However, under subsection 75-5(2), the margin scheme does not apply if the entire real property was acquired through a supply that was 'ineligible for the margin scheme'. Subsection 75-5(3) sets out seven circumstances in which a supply would be 'ineligible for the margin scheme'. Relevantly, it provides that: (3) A supply is ineligible for the margin scheme if: (a) it is a *taxable supply on which the GST was worked out without applying the *margin scheme; or ... (e) it is a supply in relation to which all of the following apply: (i) you acquired the interest, unit or lease from an entity as, or as part of, as part of, a *supply of a going concern to you that was *GST-free under Subdivision 38-J; (ii) the entity was *registered or *required to be registered, at the time of the acquisition; (iii) the entity had acquired the entire interest, unit or lease through a taxable supply on which the GST was worked out without applying the margin scheme; or...

In this case, Entity A acquired the Property from Entity B as a GST-free supply of a going concern on XX XXX XXXX. As such, the acquisition does not fall within the category of supplies that are 'ineligible for the margin scheme' under paragraph 75-5(3)(a). Furthermore, paragraph 75-5(3)(e) is not applicable in these circumstances, as this provision is only relevant to real properties acquired on or after XX XXX XXXX. Accordingly, we consider that Entity A is eligible to apply the margin scheme under Division 75. Question 3 Will the purchase price of $X that Entity A paid to acquire the Property be its margin scheme cost base in a future supply of the Property under the margin scheme? Application of relevant Law Subsection 75-10(1) provides that if the margin scheme applies to the taxable supply of real property, the amount of GST on the supply is 1/11 of the margin for the supply. The 'margin' is defined in subsection 75-10(2) as: (2) Subject to subsection (3) and section 75-11, the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.

Paragraph 13 of Goods and Services Tax Ruling 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8) provides that: 13. Under the margin scheme, the GST payable on the supply of real property is 1/11 th of the margin for the supply. The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property unless subsection 75-10(3) or section 75-11 applies. Section 75-11 applies to supplies made on or after 17 March 2005. Subsection 75-11(3) sets out four different circumstances where a valuation of the relevant real property interest as at a certain date would be used as the margin scheme cost base instead of the acquisition price. None of these circumstances are relevant to the current case. Section 75-11 provides five particular circumstances where the margin scheme cost base would not be the acquisition price. Relevantly, subsection 75-11(5) provides for margin for supply of real property acquired as a GST-free going concern. If the requirements in subsection 75-11(5) are satisfied, the margin will be calculated as follows: (5) If:

(a) you acquired the interest, unit or lease in question from an entity as, or as part of: (i) a *supply of a going concern to you that was *GST-free under Subdivision 38-J; or (ii) a supply to you that was GST-free under Subdivision 38-O; and (b) the entity was *registered or *required to be registered, at the time of the acquisition; and (c) none of subsections (1) to (4) applies; the margin for the supply you make is the amount by which the *consideration for the supply exceeds: (d) if that entity had acquired the interest, unit or lease before 1 July 2000 and on that day was registered of required to be registered: (i) if you choose to apply an *approved valuation to work out the margin for the supply - an approved valuation of the interest, unit or lease as at 1 July 2000; or (ii) if subparagraph (i) does not apply - the *GST inclusive market value of the interest, unit or lease as at 1 July 2000; or (e) if that entity had acquired the interest, unit or lease on or after 1 July 2000 and had been registered or required to be registered at the time of the acquisition:

(i) if the entity's acquisition was for consideration and you choose to apply an approved valuation to work out the margin for the supply - an approved valuation of the interest, unit or lease as at the day on which the entity had acquired it; or (ii) if the entity's acquisition was for consideration and subparagraph (i) does not apply - that consideration; or (iii) if the entity's acquisition was without consideration - the GST inclusive market value of the interest, unit or lease as at the time of the acquisition; or... However, subsection 75-11(5) is not applicable to the current case, as it applies to supplies where the relevant property was acquired on or after XX XXX XXXX. It follows that the acquisition price of $X is the margin scheme 'cost base' to calculate the margin. > [1] Case M89 (1990) 12 NZTC 2556