GST and sale of a block of residential flats with leases intact as a going concern

Is the entity, the owner of a block of residential flats, making 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), when it supplies that block of residential flats, with leases intact, to the recipient?

Yes, the entity is making a GST-free supply of a going concern under section 38-325 of the GST Act when it supplies that block of residential flats, with leases intact, to the recipient.

The entity is the owner of a block of residential flats that are all let. The entity supplies the entire block of flats, with leases intact, to the recipient.

The recipient is not an existing tenant. The supply is for consideration. Both the entity and the recipient are registered for goods and services tax (GST). They have also agreed in writing that the supply is of a going concern. The entity carries on the enterprise of leasing until the day of the supply.

A supply of a going concern is GST-free where it meets the requirements specified in section 38-325 of the GST Act.

Subsection 38-325(2) of the GST Act provides that 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).

The entity carries on the enterprise of leasing until the day of the supply. This satisfies paragraph 38-325(2)(b) of the GST Act. It remains to be determined whether the supply is a supply under an arrangement under which the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise (see paragraph 38-325(2)(a) of the GST Act).

Paragraph 80 of Goods and Services Tax Ruling GSTR 2002/5 - Goods and services tax: when is the 'supply of a going concern' GST - free? states: 'The supplier supplies all of the things that are necessary for the continued operation of the enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.'

(This statement also appeared in paragraph 71 of GSTR 2001/5, which was withdrawn and replaced by GSTR 2002/5 with effect from 16 October 2002.)

In this case, the entity supplies to the recipient a block of residential flats with the existing leases intact. When the entity supplies the block of flats with the leases intact, it provides to the recipient all of the things that are necessary for the continued operation of the enterprise of leasing those flats.

Accordingly, paragraph 38-325(2)(a) of the GST Act is satisfied and the entity makes a supply of a going concern.

Subsection 38-325(1) of the GST Act provides that a 'supply of a going concern' is GST-free if: • the supply is for consideration; • the recipient is registered or required to be registered for GST; and • the supplier and the recipient have agreed in writing that the supply is of a going concern.

The supply is for consideration, the recipient is registered for GST and the entity and the recipient have agreed in writing that the supply is of a going concern. Accordingly, the requirements of subsection 38-325(1) of the GST Act are satisfied.

Therefore, the entity makes a GST-free supply of a going concern under section 38-325 of the GST Act when it supplies a block of residential flats with leases intact. [Note 1: Although the supply of the block of residential flats may also be input taxed under section 40-65 of the GST Act (as a supply of residential premises that are not new residential premises), paragraph 9-30(3)(a) of the GST Act provides that this supply is still GST-free and not input taxed. Note 2: Where the recipient intends to use the block of residential flats to make input taxed supplies (by leasing those residential flats), it will have an increasing adjustment under section 135-5 of the GST Act. Note 3: This ATO ID should be read in conjunction with ATO ID 2002/710.]