If the Trust purchases the premises that they currently lease and run their business from, can the sale qualify as a GST-free sale of a going concern under section 38-325?
No. This ruling applies for the following period : Financial year ending 30 June 2025 The scheme commences on: The date this private ruling is issued
The Trust operates a business from leased premises. The owner of the leased premises has decided to sell, and the Trust has first option to purchase the premises.
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is a GST-free supply if it is supplied under an arrangement for the supply to be a going concern. Section 38-325 states: (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: (d) the supplier supplies to the *recipient all of the things necessary for the continued operation of an *enterprise; and (e) 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 being carried on by the supplier) Application in this case In order for a sale of an enterprise to qualify as a GST-free supply of a going concern, all of the provisions of section 38-325 must be satisfied.
The owner conducts an enterprise of leasing. If the Trust purchases the property, the enterprise being carried on will cease as at the day of settlement. Therefore, the leasing enterprise being carried would not qualify as a GST-free sale of a going concern as all things necessary for the continued operation of the enterprise will not be provided. Goods and services Taxation Ruling GSTR 2002/5: when is a supply of a going concern GST-free? (GSTR 2002/5) provides the following: Supply by a lessor of the benefits of covenants under a lease 108. The owner of an enterprise which consists solely of the leasing of property cannot make a 'supply of a going concern' when supplying the real property subject to the lease to the lessee. All of the things that are necessary for the continued operation of the enterprise includes the supply of the property and the covenants. The owner is not able to supply to the lessee the benefit of the covenants which are necessary for the continued operation of the existing enterprise of leasing the property. In conclusion
Although the other provisions of section 38-325 may be satisfied if the Trust was to purchase the leasing enterprise, paragraph 38-325(2)(a) cannot be satisfied in relation to the enterprise as all things necessary to carry on the leasing enterprise cannot be provided. That is because the current lease will cease as at the date of settlement and an entity cannot have a lease with themselves.