The Australian Taxation Office (ATO) has acknowledged at a recent National Tax Liaison Group GST sub-group meeting that the supply of a partly constructed building subject to agreements for lease with third parties may be a supply of a going concern for GST purposes. However, the ATO has not stated this change in view in a document that is publicly binding on the Commissioner.

Previous ATO view

It is not uncommon for a property developer (Developer A) to want to sell a partly constructed building to another developer (Developer B). If Developer A has signed up tenants for the new building, then the parties may want to treat the sale as a supply of a going concern for GST purposes. This ensures no GST is payable on the sale and reduces stamp duty. For a supply to be a GST-free supply of a "going concern":

  • the supply must be a supply of an "enterprise"
  • the supplier must carry on that enterprise until the day of the supply
  • the supplier must supply all of the things necessary for the continued operation of that enterprise
  • the supply must be for consideration (whether monetary or non-monetary)
  • the purchaser must be registered or required to be registered for GST, and
  • the supplier and recipient must have entered into a written agreement for the supply to be a GST-free supply of a going concern before the day of the supply.

Historically, the ATO has been of the view that the supply of a partly constructed building sold subject to agreements for lease with third parties would not be a supply of a going concern. This was primarily because the ATO did not think that the activities of leasing had commenced as at the date of the supply.

What does this change in ATO view mean for you?

If you want to sell a partly constructed building and you have entered into agreements for lease with third parties for that building, then you may agree that the supply is a GST-free supply of a going concern, provided that all of the requirements of section 38-325 of the GST Act are satisfied (refer above). Deacons would recommend that, until the change in ATO view is confirmed by the ATO in a document that is binding on the ATO, that you should consider obtaining a GST Private Ruling if you want to treat the sale as a GST-free supply.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.