On Friday the Tribunal handed down its decision in SDI Group Pty Ltd and Commissioner of Taxation  AATA 763 where it found that the applicant (vendor) and the purchaser of commercial property had satisfied the requirement that the parties agree that the sale was a supply of the going concern, notwithstanding that no such agreement was provided for in the Contract of Sale.
The case is very much restricted to its facts, but the decision arguably conflicts with the Commissioner’s stated view in GSTR 2002/5 that the term “agreed in writing” in s 38-325 means “that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply…is a supply of a going concern”. This is because there was nothing actually signed by the purchaser to the effect that the agreement was the supply of a going concern, and the Tribunal found that it in the particular circumstances certain “unilateral documents” under the hand of the vendor were sufficient.
The facts can be summarised as follows:
- in December 2009 the applicant and the purchaser executed a contract of sale for the sale of commercial property. At the time there was a tenant of the property on a monthly lease – the contract was expressly subject to the lease. The Contract did not refer to the property being a going concern.
- After the contract was signed, there was a dispute between the parties as to whether the sale was a going concern due to there being a only a monthly lease only.
- Prior to, or at settlement, the applicant provided the purchaser with a tax invoice which contained the words “NO GST (SOLD AS A GOING CONCERN)” and a Goods Statutory Declaration in which the Box was ticked “Yes” in answer to the question “Does the contract relate to the sale of a going concern?”
The Commissioner contended that the parties had not “agreed in writing” that the sale was the supply of a going concern, and that the tax invoice and Statutory Declaration were “unilateral documents”.
The Tribunal found in favour of the applicant on the basis that there was sufficient evidence that the applicant and purchaser agreed in writing that the supply involved a going concern – indeed the Tribunal found that the parties had “incorporated an agreement in writing that the supply involved a going concern”. The requirement for the agreement to be “in writing” was satisfied by a combination of the contract of sale, the tax invoice and the Statutory Declaration.
The Commissioner’s concern appeared to be that the applicant could not point to a document evidencing an agreement in writing which was signed by the purchaser – the Commissioner accepts that such an agreement need not be found exclusively in the Contract of Sale. One way of looking at the Tribunal’s decision is that by the purchaser proceeding with settlement after receiving the tax invoice and the Statutory Declaration, that the purchaser, by conduct, agreed that the sale was of a going concern in accordance with those documents. Such an agreement is arguably still an agreement “in writing”, as it is evidenced by the written terms of the tax invoice and the Statutory Declaration. It remains to be seen whether the Commissioner appeals the decision on the basis that an agreement will only be “in writing” where a document evidencing the agreement is executed by both parties.
Last week the Commissioner published GSTR 2012/3 ‘Goods and Services tax: GST treatment of care services and accommodation in retirement villages and privately funded nursing homes and hostels. The ruling explains when care services and accommodation provided to residents in privately funded nursing homes, aged care hostels and serviced apartments in a retirement village are GST-free under ss 38-25(3), (4) and (4A). The ruling was issued in draft as GSTR 2011/D5. The transitional arrangements under the Ruling are that Fact Sheet ‘GST and serviced apartments in retirement villages”: NAT 12761 is withdrawn but for tax periods prior to the date of issue, the Commissioner will not seek to disturb the GST treatment where the taxpayer has followed and applied then news as set out in the fact sheet and also Issue 10 of the Retirement Villages Industry Partnership – issues register.
My analysis of the Ruling can be accessed here.
On 14 December 2011 the Commissioner published the following rulings and determinations.
GSTR 2011/D5 – Goods and services tax: GST treatment of care services and accommodation in retirement villages and privately funded nursing homes and hostels
GSTD 2011/4 – Goods and services tax: Are accommodation bond retention amounts or accommodation charges paid, by residents of an aged care facility covered by the Aged Care Act 1997, that is supplying GST-free services under subsection 38-25(1) of the GST Act, consideration for a GST-free supply?
- the Commissioner’s view is that the accommodation bond retention amounts and accommodation charges paid by residents are consideration for a GST-free supply, namely the GST-free supplies of services and accommodation – this is because those payments are made by the resident “in connection with” a package of services and accommodation supplied to them by the approved provider
GSTD 2011/D4 – Goods and services tax: What is ‘hospital treatment’ for the purposes of section 38-20 of the GST Act?
- save for one change, the views in the draft determination reflect those of the ATO in Issue 3.a, Issue 3.c.1 and Issue 3.2.c of the Health Industry Partnership Industry Register – the register can be accessed here.
- the draft determination accepts that where the fee for accommodation includes access to a telephone, that forms part of the GST-free supply of hospital treatment. This is a change from the previous view of the Commissioner, which was that the provision of the telephone and calls were separate and there needed to be an apportionment of the fee.
- where a separate fee is paid for telephone or television, those items will be supplied separately from the hospital treatment.
- the draft determination is to apply from 26 March 2009 – the draft also recognises that to the extent that an entity treated access t a telephone as a taxable supply where an additional fee was not charged, they may be entitled to a refund
On 16 November 2011 the Commissioner issued GSTD 2011/2 – Goods and services tax: can a ‘farming business’ be carried on, for the purposes of paragraph 38-480(a) of the GST Act where there has been a cessation of routine farming activities by the supplier for a period of time as a consequence of a decision to sell the land?
The Commissioners says that the answer can be yes, although the question will be one of fact and degree depending on the circumstances of each case.
There is nothing particularly surprising in the determination, save for the apparent approach of the Commissioner to equate the term “carrying on a farming business” with the more expansive concept of “carrying on an enterprise”, so as to include acts done in the the commencement and termination of the farming business.
Paragraph 38-480(a) relevantly provides that the supply of of a freehold interest in land is GST-free if “the land is land on which a *farming business has been *carried on for at least the period of 5 years preceding the supply.” Section 38-475(2) provides that an entity “carries on a farming business” if it carries on the business of [those matters listed at paragraphs (a)-(d)].
In the Determination, the Commissioner adopts the following approach:
- if an entity carries on a business consisting of one of the classes of farming, the entity is carrying on an enterprise that is a farming business;
- carrying on an enterprise is defined in s 195-1 to include ‘anything done in the course of the commencement of the enterprise’;
- accordingly, for the purposes of paragraph 38-480(a), carrying on a farming business includes all the routine farming activities carried out on the land together with any other activities related to the commencing, conducting and terminating the farming business.
While one can understand the logic of this approach, I am not sure that it is consistent with the words used in the act. The provisions requirements in 38-475(2) as to when an entity “carries on a farming business” are quite specific, whereas the broad definition of “carrying on” in s 195-1 is limited to “enterprise”. In this regard, the view in the Determination of what constitutes the carrying on of a farming business may be broader than actually provided for in the legislation. This will probably not be an issue for taxpayers as it potentially serves to increase the scope of the GST-free exemption for farmland.
Some matters not dealt with in the Determination, which may cause issues down the track are:
- how long is the “period of time” for which an entity can cease routine farming activities before selling the land?
- Can an entity cease farming activities and effectively leave the property “dormant” while trying to sell the land, or do steps have to be taken towards trying to sell the land before ceasing the farming activities?