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Edited version of private ruling
Authorisation Number: 1011513414526
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Ruling
Subject: Sale of a going concern
Question
Is the sale of the business and business assets 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)?
Answer: Yes.
The sale of the business and business assets is a GST-free supply of a going concern.
Relevant facts and circumstances
The parties entered into an agreement, pursuant to a Sale and Purchase Deed (SPD), to sell the business and business assets.
A clause of the SPD states:
Conditional upon Completion, (the supplier) agrees to sell to the Buyer and the Buyer agrees to purchase from (the supplier) the Business as a going concern and full legal title and the entire beneficial ownership of the Business Assets, free of all Encumbrances, subject to and on the terms of this document and the Land Sale Agreements.
A formula for the purchase price is in the SPD.
The buyer will be required, and intends, to be registered for GST. It is stated in the SPD:
The Buyer warrants to the Seller that it is registered or required to be registered for GST.
The parties have agreed in writing that the supply is of a going concern.
Until completion the supplier must ensure that the business is carried on in the ordinary and normal course.
The SPD sets out the mechanism for transferring the business. Business is defined and business assets and excluded assets are listed.
The supplier has a number of subsidiaries (collectively referred to as the Licensee Companies) that hold no assets other than the building licences. As part of the SPD, the building licences will be transferred by supplying 100% of the shares in each Licensee Company to a related company to the buyer who is also a guarantor under the SPD.
Reasons for decision
The supply of a going concern is GST-free in certain circumstances as provided by section 38-325 of the GST Act.
38-325 Supply of a going concern
(1) 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.
(2) A supply of a going concern is a supply under an arrangement under which:
(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 terms marked with an asterisk are defined in section 195-1 of the GST Act.
Goods and Services Tax Ruling 2002/5 'Goods and services tax : when is a supply of a going concern GST-free?' provides the Commissioner's view of section 38-325.
For the purposes of the definition of a supply of a going concern, it is not a supply itself which must satisfy the conditions in subsection 38-325(2) of the GST Act but rather the arrangement under which a supply is made. There may be several supplies, each of which is a "supply of a going concern'' under the one arrangement. (Paragraph 15 of GSTR 2002/5 refers).
The term '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 is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the identified enterprise).
In this case, the identified enterprise is the contract home building business.
The SPD and other documentation provided in support of the private ruling application are consistent with an intention to transfer the identified enterprise from one party to the other.
Some aspects of the business are unable to be transferred.
Paragraph 72 of GSTR 2002/5 provides guidance on 'all the things that are necessary for the continued operation of an enterprise:
The things that are 'necessary' will depend on the nature of the enterprise carried on and the core attributes of that enterprise. The term 'all of the things that are necessary' does not refer to every conceivable thing which might be used in the 'identified enterprise'.
The SPD sets out to transfer what can be transferred and then put in place provisions to ensure that the buyer will be supplied with all of the things that are necessary for the continued operation of the enterprise.
It is accepted that the requirements of section 38-325 of the GST Act are satisfied:
· the supply is for consideration;
· the recipient (SHC) is registered or required to be registered for GST;
· it is stated in writing that the supply is of a going concern;
· all things necessary for the continued operation of an enterprise are supplied; and
· the supplier will carry on the enterprise until the day of supply.
Accordingly, it is accepted that the sale of the business and business assets is a GST-free supply of a going concern.
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