Edited version of private ruling

Authorisation Number: 1011530761900

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Ruling

Subject: Sale of going concern

Are the supplies that comprise the sale of the business and business assets as set out in the Business Sales Agreement, made by the specified sellers (the Sellers) to the specified purchaser (the Purchaser) GST-free as a supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supplies that comprise the sale of the business and business assets as set out in the Business Sales Agreement, made by the Sellers to the Purchaser are GST-free as a supply of a going concern.

Relevant facts and circumstances

The subject of the sale is an identified business enterprise. The sale of the business is evidenced in the Business Sale Agreement (the Agreement) between the Sellers and the recipient.

There is more than one supplier covered by the Agreement. All supplies are made to the one recipient.

The Sellers under the Agreement are a joint venture (the Joint Venture), Company 1 and company 2.

The Joint Venture has been approved as a GST joint venture. One of the selling companies is the nominated joint venture operator.

The Sellers are part of the same GST group. One of the selling companies is the nominated representative member of the GST group.

Each of the Sellers under the Agreement is in receivership with a receiver and manager appointed.

A copy of the Business Sales Agreement as well as the Joint Venture Agreement and the Operating Agreement has been provided.

The role of the respective parties in the current business operations can be summarised:

The Joint Venture operates the enterprise in accordance with the Joint Venture Agreement and the Operating Agreement. The Joint Venture earns business revenue from making supplies to customers. In order to make those supplies it acquires services from company 2.

Company 1 is the agent and nominee of each of the joint venturers and is charged to manage and administer the Joint Venture. Company 1 and Company 2 entered into the Operating Agreement and appointed Company 2 to provide services to the Joint Venture

Company 2 provides services to the Joint Venture as an independent contractor and in turn acquires goods and services from third party suppliers.

Pursuant to the Business Sales Agreement:

The Sellers agree to sell the business as a going concern with right title and interest of the Sellers in the business assets to the Purchaser.

The Sellers' supply to the Purchaser is made for consideration. A formula for the purchase price payable for the transfer of the business and business assets is included.

Business assets include contracts, leases, authorisations, goodwill, records, IP, plant and equipment and inventory.

Benefit of business contracts, equipment and property leases is assigned to the Purchaser.

The Sellers must procure that the business is carried on in accordance with usual and prudent business practices up to completion of sale.

The parties to the agreement agree the supply of the business and business assets is a supply of a going concern for GST purposes.

The Purchaser warrants that at completion of the sale it will be registered for GST. Further, the Purchaser will be required to register for GST as at completion of the sale their GST turnover will exceed the GST registration turnover.

The Purchaser is unrelated to the Sellers, and is not part of the sellers' GST group.

The tax agent submitting the request has authority from the Receivers and Managers of the Sellers to request the ruling on their behalf.

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. A purpose of the exemption is to remove the need for the recipient to obtain additional funds to cover the GST that would otherwise apply.

Supply of a going concern

The *supply of a going concern is GST-free if:

· the supply is for *consideration; and

· the *recipient is *registered or *required to be registered; and

· the supplier and the recipient have agreed in writing that the supply is of a going concern.

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).

The terms marked with an asterisk are defined in section 195-1 of the GST Act.

Goods and Services Tax Ruling 2002/5 provides the Commissioner's view of section 38-325 of the GST Act.

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) 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 GSTR 2002/5)

Paragraph 19 of GSTR 2002/5 explains that 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 specified enterprise operated by the Joint Venture.

The specific supplies are:

· The sale by the receiver of the Joint Venture of the business and business assets of the Joint Venture.

· The sale by the receiver of Company 1 of the business and business assets of Company 1.

· The sale by the receiver of Company 2 of the business and business assets of Company 2.

Each supply is made under the arrangement that specifically sets out to provide all the things that are necessary to enable the Purchaser to continue the operation of the identified enterprise after the sale. The Joint Venture, Company 1 and Company 2 are each supplying all the things that are necessary so that the Purchaser can continue to operate the identified enterprise from the completion date.

The Sellers must procure that the business is carried on in accordance with usual and prudent business practices up to completion of sale.

Accordingly, it is accepted that the going concern requirements under subsection 38-325(2) of the GST Act are satisfied for each supply made under the Agreement by the receivers for the respective Sellers.

Under the terms of the Agreement:

· the supply by the Sellers is for consideration;

· the Purchaser will be registered or required to be registered for GST;

· it is stated in writing that the supply is of a going concern;

Accordingly, the requirements under subsection 38-325(1) of the GST Act are satisfied.

Therefore, it is accepted that all the supplies that comprise the sale of the business and business assets as set out under the Business Sales Agreement, made by the Sellers to the Purchaser, are GST-free as the supply of a going concern under section 38-325 of the GST Act.

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