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Authorisation Number: 1051251896553
Date of advice: 11 August 2017
Subject: GST and supply of a going concern
Is the supply of the 'Sale Interest’ by Vendor to Purchaser pursuant to the Sale and Purchase Agreements a GST-free supply of a going concern in accordance with section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Relevant facts and circumstances
● Vendor carries on an enterprise of petroleum exploration and development activities in the region and is registered for goods and services tax (GST).
● Vendor carries on petroleum exploration and development activities in the designated areas permitted by the relevant permits, through its participating interest.
● On the same date, Vendor and Purchaser have executed a number of interdependent Sale and Purchase Agreements for the supply of various participating interests, collectively the 'Sale Interest’. The Sale and Purchase Agreements have the same Completion date.
● Under the terms of the Sale and Purchase Agreements,
● The parties have agreed that
● the sale of the Sale Interest constitutes the supply of a going concern for GST purposes;
● the supply is for consideration; and
● Purchaser is registered or is required to be registered for GST prior to Completion.
● Vendor carries on and has agreed to carry on the business constituting the Sale Interest until the day of supply to Purchaser.
● The sale is effective from Completion. Title and risk in the Sale Interest will pass to the Purchaser on and from Completion.
● Vendor has agreed to supply to Purchaser all of the things that are necessary for the continued operation of an enterprise.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 subdivision 38-J;
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(1); and
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(2).
Reasons for decision
A supply of a going concern is GST-free where it meets the requirements specified in subdivision 38-J of the GST Act.
Subsection 38-325(1) of the GST Act provides that a 'supply of a going concern' is GST-free if:
● the supply is for consideration
● the recipient is registered or required to be registered for GST, and
● the supplier and the recipient have agreed in writing that the supply is of a going concern.
Subsection 38-325(2) of the GST Act provides that a supply of a going concern is a supply under an arrangement under which:
● the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise, and
● the supplier carries, or will carry on, the enterprise until the day of the supply.
Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) provides the ATO view on the application of the going concern provisions.
GSTR 2002/5 explains at paragraph 19 that the phrase 'supply under an arrangement’ includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise that has been identified.
In our view, all the Sale and Purchase Agreements together constitute an arrangement under which the Sale Interest will be supplied.
In this case, Vendor is carrying on an enterprise of petroleum exploration and development in the region. This is the identified enterprise.
The identified enterprise conducted by Vendor in this instance is petroleum exploration and development activities in the designated areas permitted by the relevant permits, through its participating interest.
It is for this petroleum exploration and development enterprise that the conditions under subsection 38-325(2) of the GST Act must be satisfied. Based on the facts, these conditions would be satisfied and the sale of the Sale Interest would be a sale of a going concern.
Subsection 38-325(1) of the GST Act will be satisfied as the sale of the Sale Interest will be for consideration; the purchaser is registered for GST; and Vendor and Purchaser have agreed in writing that the supply is of a going concern.
Therefore, all the requirements of section 38-325 of the GST Act will be met at settlement and the sale of the Sale Interest will be a supply of a GST-free going concern.