In December 2010, the purchaser’s solicitor advised the company’s solicitor that the Contract did not allow for a purchase price plus GST which implied that the supply was not a going concern and the purchase price was inclusive of GST. Settlement nevertheless finally occurred on or about 20 December 2010, and the sale of the property was treated by the company as the supply of a going concern.
In 2011, the Commissioner audited the taxpayer and issued a notice of assessment for a GST shortfall of $206,818 in relation to the sale of the property.
The Commissioner contended that the supply was not a going concern as the contract did not make reference to the property being the supply of a going concern as defined in the GST law, and therefore there was no agreement in writing as required by the law. He further contended that there had been no separate contract on the going concern issue and that contemporaneous correspondence between the parties did not constitute an agreement in writing.
The company argued that the written agreement did not need to be contained in the contract itself and pointed to evidence from various other documents such as:
The Tribunal basically accepted the company’s case. It said that, based on the collective evidence, it agreed with the company that the transaction had satisfied the requirements of the relevant law concerning the going concern concession.
The Tribunal said the requirement had been satisfied through a combination of contract of sale, the tax invoice, and the Goods Statutory Declaration. Therefore, it set aside the Commissioner’s decision of a GST shortfall of $206,818 and held that the transaction between the company and the purchaser of the property incorporated an agreement in writing that the supply involved a going concern under the GST law and was therefore GST-free.
An advantage of selling a going concern as a GST-free supply is that input tax credits may be claimed on otherwise input taxed supplies, e.g. tenanted residential buildings. This would enable the supplier to claim input tax credits on selling costs such as legal and real estate services, which would otherwise not be available.
An agreement in writing as to the going concern point will save the day for a taxpayer and this AAT case at least clarifies that such an agreement can be evidenced by materials outside of the contract of sale itself.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
