GST - property

1 Will the sale of Property 1 and Property 2 as specified in the Contract executed on XX XXX XXXX, constitute a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

1 Yes, your supply of the properties situated at Property 1 and Property 2 as specified in the Contract executed on XX XXX XXXX, constitutes a GST-free supply of a going concern pursuant to section 38-325 of the GST Act. This ruling applies for the following periods : XX XXX XXXX to XX XXX XXXX The scheme commenced on: XX XXX XXXX

1.               The seller are registered for an Australian Business Number (ABN) and goods and services tax (GST) from XX XXX XXXX. The seller operates under an ABN. 2.               The Purchaser are registered for an ABN from XX XXX XXXX and GST from XX XXX XXXX. The Purchaser operates under an ABN. 3.               The seller acquired the following properties: •                 Property 1 under certificate and folio number XXX (Property 1) in XX XXX XXXX as a fully taxable supply for the price of $XX(GST inclusive). The margin scheme was not used in this transaction. •                 Property 2 under certificate and folio number XXX (Property 2) in XX XXX XXXX and held it as at XX XXX XXXX. •                 The seller is currently the registered proprietor of Property 1 and Property 2 (the Properties). 4.               The seller and the Purchaser entered into a Put and Call Option Agreement (PCO Agreement) on XX XXX XXXX. 5.               The PCO Agreement granted the Purchaser the option to purchase the Properties (via the exercise of a call option) and granted the seller the option to sell the Properties (via the exercise of a put option).

6.               The Purchaser lodged a Development Application XXX (Development Application) on XX XXX XXXX with the council for Property 1 and Property 2. The Development Application was referred to the Central Planning Committee (CPC) as the cost of development exceeded $XXX. The Purchaser lodged amended plans and additional information in response to CPC's recommendations on XX XXX XXXX. 7.               The Development Application was approved by CPC on XX XXX XXXX. The Development Application as modified, seeks consent for: •                 Demolition of existing building on site •                 Site amalgamation of the two separate allotments •                 Basement excavation to provide X basements levels including: ­       Details supplied. •                 A X storey tower that is Xm (in height comprising: ­       Details supplied. 8.               On XX XXX XXXX, CPC also approved an application by the Purchaser to modify the development consent. 9.               On XX XXX XXXX, the Purchaser exercised the call option to purchase the Properties. The Contract of sale (Contract) was formed between the Seller and the Purchaser for the Properties.

10.            The Contract under clause X provides that the supply of the Properties under the Contract constitutes one or more supplies of a going concern. The purchase price listed on the Contract was $XXX. 11.            The seller and the Purchaser have agreed that the purchase price of the Properties for the purpose of clause X of the Contract is to be revised to $XX (Purchase Price) under the terms of the Deed of Settlement and Release, the terms of which are confidential. The Purchase Price is subject to further adjustments under the Contract. 12.            Clause X of the Contract provided that the Seller and the Purchaser will submit an application for a GST private ruling to determine the matters set out in clause X(x)(x) and (x) of the Contract. 13.            Clause X of the Contract also provides for certain variations to be made to the Purchase Price if the going concern exemption is not achieved. In summary: •                 The seller will be entitled to a lower Purchase Price if the Commissioner determines that the sales of the Property is not a GST-free supply of a going concern.

•                 The Contract includes a mechanism that would result in the Seller receiving a reduced Purchase Price in the event the Properties cannot be sold as a GST-free supply of a going concern. •                 The adjustment Purchase Price in accordance with clause X of the Contract has been calculated, with the assumption in clause X, and the amount that the Seller receives is reduced by approximately $XX if the Properties are not sold as a GST-free supply of a going concern. 14.            The Seller and the Purchaser entered into a Deed of Variation to the Contract on XX XXX XXXX, which provides that the transfer of the Properties to the Purchaser will settle on XX XXX XXXX. 15.            The Properties are leased under three separate lease agreements. The seller is the lessor under each of the following lease agreements: •                 Commercial lease for the Properties, excluding the X floor and X Room of the property, which are both leased under separate lease agreements (Lease 1). Lease 1 is between the Seller and X. Lease1 is for X years, commencing on XX XXX XXXX and terminating on XX XXX XXXX.

•                 Commercial lease for the 'X floor' of the building at Property 2 (Lease 2) between the Seller and X. Lease 2 is for X years, having commenced on XX XXX XXXX and terminating on XX XXX XXXX. •                 Commercial lease for the 'X Room' of the building at Property 2 (Lease 3) between the Seller and X. Lease 3 is for X years, having commenced on XX XXX XXXX and terminating on XX XXX XXXX. 16.            Upon the Properties transfer on XX XXX XXXX, the Purchaser will continue to operate the leasing enterprises under the Lease 1, Lease 2 and Lease 3 (Leases). 17.            The seller obtained a margin scheme valuation for Property 2 as at XX XXX XXXX with a value of $XX from X on XX XXX XXXX.

A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax Act) 1999 section 9-20 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 Does Part IVA apply to this private ruling? Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. We have not fully consi

In this ruling, •                 unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) •                 all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act. •                 all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au Section 9-5 provides that you make a taxable supply if: (a)             you make the supply for consideration; and (b)             the supply is made in the course or furtherance of an enterprise that you carry on; and (c)             the supply is connected with the indirect tax zone (Australia); and (d)             you are *registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Accordingly, the supply of the Properties is a taxable supply under section 9-5 of the GST Act, unless the supply is a GST-free supply under Division 38, or an input taxed supply under Division 40.

There are no provisions in the GST Act under which the Seller's sale of the Properties will be input taxed. We will now consider whether the supply of the Properties will be GST-free. Supply of a going concern 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: (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 In this case, the Properties will be transferred by the Seller to the Purchaser for the consideration of $XX under the terms of the X document. At the settlement date of XX XXX XXXX, the revised purchase price is listed as $XX in the X document executed on XX XXX XXXX. Accordingly, the condition under paragraph 38-325(1)(a) will be satisfied. Condition 2 - the recipient is registered or required to be registered The Purchaser has been registered for GST from XX XXX XXXX and is expected to be registered or required to be registered for GST at the time of the supply (settlement date). Accordingly, the condition under paragraph 38-325(1)(b) will be satisfied. Condition 3 - agreement 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 .

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. Based on the facts of this case, there is sufficient commercial and documented evidence to demonstrate written agreement between the parties that the supply of the Properties will be a GST-free supply of a going concern. Accordingly, the condition under paragraph 38-325(1)(c) will be satisfied. 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'. 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 of the things necessary for the continued operation of an enterprise Paragraphs 72 to 74 of GSTR 2002/5 states the following:

72. 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. 73. 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. 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 state 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, the Seller operated a leasing enterprise for the Properties and the Leases will continue post transfer. This is evidence that the Purchaser will be provided with everything necessary to continue the leasing enterprise. Based on the facts of this case, all the necessary things for the continued operation of the leasing enterprise will be supplied to the Purchaser. Accordingly, the condition under paragraph 38-325(2)(a) will be satisfied. 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. 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.

In this case, settlement (day of the supply) is scheduled for XX XXX XXXX. The Leases over the Properties indicates that the Seller will continue to carry its leasing enterprise until the day of the supply. This is also evidenced by the termination dates on the Leases, which are all after the day of supply. This shows a continuity of the Leases after the transfer of the Properties to Purchaser. Although Lease 1 will commence X days before the day of supply, per paragraph 136 of GSTR 2002/5, it will be accepted that the Seller has carried on an enterprise of leasing, albeit for only X days in relation to Lease 1. Accordingly, the condition under paragraph 38-325(2)(b) will be satisfied. As all the requirements of section 38-325 will be satisfied, the supply of the Properties specified in the Contract executed on XX XXX XXXX will constitute a GST-free supply of a going concern pursuant to section 38-325 of the GST Act.