Is the supply of your property 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. The supply of your property is a GST-free supply of a going concern under section 38-325 of the GST Act.
You are registered for goods and services tax. You and Entity B entered into a contract of sale for your property. In the contract, both parties agreed to the relevant terms and in particular, that the sale of the property is: • for an agreed amount • settlement date is 30 days after the contract date • a sale of a going concern and the relevant standard going concern clause in the contract applies, and • is subject to the current existing lease that is expiring after settlement date. The sale of the property settled according to the agreed terms.
A New Tax System (Goods and Services Tax) Act 1999 section 9-20 A New Tax System (Goods and Services Tax) Act 1999 section 38-325
Detailed reasoning All legislative references are to the GST Act, unless otherwise stated. Going concern Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. 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: a. the supplier supplies to the recipient all of the things 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 being carried on by the supplier). In this case, the sale of the property was for consideration and Entity B is registered for GST. This satisfied the two requirements under paragraphs 38-325(1)(a) and (b). In this regard, we have to consider whether all the other requirements under section 38-325 are satisfied. Goods and Services Taxation Ruling GSTR 2002/5
Goods and services tax: when is a supply of a going concern GST-free? (GSTR 2002/5) discusses elements of the supply of a going concern for the purposes of section 38-325. Agreed in writing Paragraph 38-325(1)(c) states that the supplier and the recipient of the supply must have agreed in writing that the supply is of a going concern. Paragraphs 178,179 and 181 to 185 of GSTR 2002/5 provides clarification on what 'agreed in writing' entails. The written agreement need not form part of the arrangement under which the supply of a going concern is made. The important thing is that 'the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a supply of a going concern'. Further, the supplier and the recipient must agree that the supply is a 'supply of a going concern' on or before the day of the supply.
You and Entity B had agreed in writing that the sale of the property is a sale of a going concern and the relevant standard going concern clause in the contract applies. We consider that the requirement under paragraph 38-325(1)(c) is satisfied. All things necessary Paragraph 29 of GSTR 2002/5 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 the things necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as a part of a larger enterprise. Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that are '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 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing.
The definition of enterprise in section 9-20 includes an activity, or series of activities, done on a regular or continuous basis in the form of a lease. Your activity of leasing the property falls within the definition of enterprise. Paragraph 107A of GSTR 2002/5 provides that where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenant or tenants is all that is required to satisfy paragraph 38-325(2)(a). We consider that the requirement under paragraph 38-325(2)(a) is satisfied because the sale of the property is subject to the current lease. Continued operation Paragraph 149 of GSTR 2002/5 provides that the term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise. We consider that the requirement under paragraph 38-325(2)(b) is satisfied because the current lease is in place until the settlement date.
Therefore, in making the sale of the property, you made a GST-free supply of a going concern under section 38-325 as all the requirements of that provision are satisfied.