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Authorisation Number: 1051238355413
Date of advice: 9 August 2017
Subject: Goods and Services Tax (GST) and supply of a going concern
Is your sale of a truck, with a contract in place with another entity for its use, a GST-free supply of a going concern?
Relevant facts and circumstances
You are registered for GST.
You entered into a carrier contract with X and purchased a truck.
You then sold the truck to Y on a condition that X would transfer the contract to Y, which X agreed.
The balance of the purchase price for the truck was paid on Xdate.
The original tax invoice was prepared by Y’s broker with no reference to the truck being sold as a going concern. It said the cost price was inclusive of GST.
On Ydate, which is after Xdate, your Director went with D to the Department of Transport to get the vehicle registered in Y’s name because you agreed that you would pay the stamp duty on their behalf.
Y then contacted you and suggested that you should consult your accountant whether you could sell the truck as a GST-free ongoing concern. You agreed with Y’s explanation and were happy to proceed.
You then looked up on ATO website for advice. A few days went past before you contacted Y’s broker and explained to them the conversation you had with Y about the GST-free supply and that you needed an amended tax invoice stating the “Truck is being sold as a going concern”. They agreed and issued you an amended tax invoice and only added “Truck is being sold as an ongoing concern”. This is the reason why the cost price is inclusive of GST on the Tax invoice and was not removed.
X subsequently transferred the carrier contract to D.
You continued to carry on the enterprise with the truck pursuant to the contract with X until the day of the supply of the truck ie DDMMYY
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999
Subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999
Subsection 38-325(2) of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
A supply is taxable to the extent that it is not GST-free or input taxed. There are no provisions that would result in a sale of a truck being input taxed. However, we need to consider the GST-free provision. In particular, a supply of a going concern is GST-free under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if certain conditions are satisfied.
Subsection 38-325(1) of the GST Act states that 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.
Subsection 38-325(2) defines a supply of a going concern as a supply under an arrangement where:
(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).
The sale of the truck along with the transfer of the carrier contract and the fact that you carried on that enterprise until the day title in the truck is transferred to Y meant that the supply of the truck to Y is a supply of a going concern for GST purposes.
In order for this going concern supply to be GST-free, there must be consideration for the sale of the truck, Y must be registered for GST and you and Y must agree in writing that the sale of the truck is a supply of a going concern.
In your case, the first two criteria are satisfied as the truck was sold for a certain amount and Y is registered for GST.
Regarding the criterion 'the supplier and the recipient have agreed in writing that the supply is of a going concern’, the 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) provides that:
179. The GST Act does not specify what form the agreement has to be in, nor does it define the term 'agreed in writing'. The term 'agreed' means 'to be in one mind; harmonise in opinion or feeling'.
180. Section 2B of the Acts Interpretation Act 1901 defines 'writing' as 'includes any mode of representing or reproducing words, figures, drawings or symbols in a visible form.' In Peverill v. Meir (1990) 95 ALR 401, Justice Burchett concluded that:
'When the Act requires the request to be in writing, I think it refers to a request which read reasonably, conveys the information that the procedure in question is to be performed.'
181. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that 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 tax invoice you provided contains a statement that 'the truck is being sold as an ongoing concern’. We therefore accept that you and Y agreed in writing that the supply of the truck is a supply of a going concern.
However, paragraph 182 of the GSTR 2002/5 specifies the timing as to when the supplier and the recipient must agree in writing that a supply is of a going concern.
182. 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.
In your case, the supply occurred upon payment of the balance on Xdate. At that time, there was no intention between you and Y that the supply was of a going concern. The tax invoice you provided stated that the Cost Price was GST inclusive. Subsequent to this, you both agreed verbally to make the supply a going concern and the recipient evidenced this by amending the tax invoice with your permission to note that the supply was a going concern. This occurred after the date of the supply. As the agreement was not made on or before the date of supply, the supply cannot be a GST-free supply of a going concern even if other criteria in subsection 38-325(2) of the GST Act are satisfied.
The sale of your truck took place in Australia at a particular price and as part of your enterprise in which you are registered for GST. Thus, the sale of your truck satisfied section 9-5 of the GST Act and is taxable.