ATO Interpretative Decision

ATO ID 2001/447

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a participant in a joint venture, making a GST-free supply under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies:

•

its share of the joint venture assets;

•

its shares in the Joint Venture Operator;

•

its rights and obligations in the joint venture; and

•

its rights and obligations under the contract of sale of the joint venture produce with a non-participant,

to another participant in the joint venture?

Decision

Yes, the entity is making a GST-free supply under section 38-325 of the GST Act, when it supplies:

•

its share of the joint venture assets;

•

its shares in the Joint Venture Operator;

•

its rights and obligations in the joint venture; and

•

its rights and obligations under the contract of sale of the joint venture produce with a non-participant,

to another participant in the joint venture.

Facts

The entity is a participant in a joint venture. The joint venture agreement specifies that the operation of the joint venture is carried on by the Joint Venture Operator as agent for each of the participants in the joint venture. The joint venture agreement also specifies that the participants own the assets of the joint venture and shares in the Joint Venture Operator in proportion to their shares in the joint venture.

Each participant in the joint venture is entitled to receive and separately dispose of its share of the joint venture produce. The entity has an ongoing contract to sell its share of the joint venture produce to a non-participant in the joint venture.

In this case, the entity is supplying its share of the joint venture assets; its shares in the Joint Venture Operator; its rights and obligations in the joint venture; and its rights and obligations under the contract of sale of the joint venture produce with a non-participant, to another participant in the JV.

The supply is for consideration and the recipient is registered for goods and services tax (GST). The supplier and recipient have agreed in writing that the supply is of a going concern. The entity will carry on its joint venture operation until the day of the supply.

Reasons for Decision

The 'supply of a going concern' is GST-free where the requirements of section 38-325 of the GST Act are met.

Subsection 38-325(2) of the GST Act states 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 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).

As the entity carries on the enterprise until the day of the supply, the issue in this case is whether the supply is a supply under an arrangement where the entity supplies all of the things that are necessary for the continued operation of the enterprise (paragraph 38-325(2)(a) of the GST Act).

Goods and Services Tax Ruling GSTR 2001/5 considers the meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise'. Paragraph 178 of GSTR 2001/5 states:

'Whether or not a business structure is a joint venture is a matter of fact. If the structure is a joint venture , then each venturer is an entity which is capable of conducting an enterprise. Provided that all of the requirements of section 38-325 are satisfied, it is possible for a joint venturer entity to make a GST-free 'supply of a going concern'. This may be when part or all of the enterprise conducted by the joint venturer is supplied, provided that what is supplied is all of the things that are necessary for the continued operation of the 'identified enterprise''.

Paragraph 71 of GSTR 2001/5 states:

'The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses'.

In this case, the entity's identified enterprise is the receiving of the joint venture produce under the joint venture agreement and separately selling the joint venture produce under the contract of sale with a non-participant.

The ownership of the shares in the Joint Venture Operator is directly proportional and intrinsically linked to the ownership interest of each joint venture participant. As such, the supply of the entity's share of the joint venture assets; its shares in the Joint Venture Operator; its rights and obligations in the joint venture is essential to the continued operation of the enterprise, carried on by the Joint Venture Operator on behalf of the joint venture participants, in extracting the joint venture produce. The supply of the entity's rights and obligations under the contract of sale of the joint venture produce with a non-participant is essential to the continued operation of the enterprise of selling the joint venture produce. The supply of all these things will put the recipient in a position to carry on the enterprise, if it chooses. Therefore, the supply satisfies the requirements in paragraph 38-325(2)(a) of the GST Act. As such, the entity is making a supply of a going concern.

As the supply of a going concern is for consideration, the recipient is registered for GST and the supplier and recipient have agreed in writing that the supply is of a going concern, subsection 38-325(1) of the GST Act is satisfied.

Therefore, the entity is making a GST-free supply under section 38-325 of the GST Act when it supplies its share of the joint venture assets; its shares in the Joint Venture Operator; its rights and obligations in the joint venture; and its rights and obligations under the contract of sale of the joint produce with a non-participant, to another participant in the joint venture.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 38-325
   subsection 38-325(1)
   subsection 38-325(2)
   paragraph 38-325(2)(a)
   paragraph 38-325(2)(b)

Related Public Rulings (including Determinations)
GSTR 2001/5

Keywords
Goods & services tax
GST-free
GST supply of going concern

Business Line:  GST

Date of publication:  11 October 2001

ISSN: 1445-2782