Edited version of private ruling

Authorisation Number: 1011613577600

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Ruling

Subject: Sale of a going concern

Question

Will the sale of two related businesses under the one arrangement by you be a GST-free supply of a going concern?

Answer

Yes, the sale of the two related businesses by you will satisfy the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to be a GST-free supply of going concern.

Relevant facts and circumstances

You operate a retail sales business. The business owns stock and a limited amount of plant and equipment. The business leases the business premises from a third party.

You hire additional plant and equipment from a related partnership of which you are the partners.

You are looking to sell both your retail sales business and the partnership to a third party. Two separate contracts for sale will be drawn up. The sales will both take place on the same day.

The following will be included in the sale:

· All plant and equipment from both businesses

· All stock held by the retail sales business

· Lease transfer of the building premises to the new owners

· All intellectual property, debtors listing, business phone number and business websites.

· Anything else required in operating the business fully.

You will be continuing to operate the retail sales business and the partnership until the day of the sale.

You have said that if the sale proceeds, there will be a written agreement between you and the purchaser that the sale will be a supply of a going concern.

Both enterprises are registered for GST.

The new purchaser will be registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(2).

Reasons for decision

Section 9-5 of the GST Act provides that a supply is a taxable supply if certain conditions are met. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

Goods and Services Tax Ruling GSTR 2002/5 "Goods and services tax: when is a supply of a going concern GST-free?" explains what is a supply of a going concern for the purposes of Subdivision 38-J of the GST Act. It also explains when the supply of a going concern is GST-free.

Subsection 38-325(1) of the GST Act further provides that the 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.

We accept that the above three dot points will be satisfied in this situation if the sale of the enterprise takes place.

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 on, or will carry on, the enterprise until the day of the supply.

Supply under an arrangement

The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. This means the supply can be under a single agreement (or contract) or can be under a number of agreements (or contracts) that form part of the same arrangement.

The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under subsection 38-325(1) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply.

In your case, the two related contracts for sale between you and the purchaser are evidence of an underlying arrangement that specifies the supply of the identified enterprises to be made by you, the vendor, to the purchaser.

Supplier supplies all the things necessary for the continued operation of an enterprise

Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which the supplier must supply to the recipient all the things that are necessary to carry on the enterprise so that the recipient is put in a position to carry on the enterprise if it chooses.

In your case, you are carrying on an enterprise of retail sales.

Paragraph 75 of GSTR 2002/5 identifies two elements essential for the continued operation of an enterprise:

· the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

· the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

Under the first contract for the sale of the retail sales business, you will supply the assets of the business, being stock, plant and equipment, intellectual property, customer listings, and anything else required in running the business. You will be assigning the lease of the business premises to the new purchaser of the business.

Under the second contract for the sale of the partnership, you will also be supplying the assets of the partnership business to the new purchaser, enabling the continued leasing of the plant and equipment to the retail sales business.

These two contracts taken together will allow the purchaser to carry on the enterprise of running the retail sales business.

Your situation is similar to that covered in paragraphs 137 and 138 of GSTR 2002/5, which deals with the sale of two separate enterprises to the one recipient. Where the two contracts are said to be interdependent of one another, the settlement dates will need to be on the same date.

This will ensure that the purchaser has been sold everything necessary to continue operations of the business.

On the facts provided, these things will be supplied together by you on the day of supply. As such, we consider that you will supply all the things necessary for the continued operation of the enterprise.

Supplier carries on the enterprise until the day of the supply

Paragraph 141 of GSTR 2002/5 provides that a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on by the supplier until the day of the supply. All activities must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

On the facts provided, you have said that both the retail sales business and the partnership will continue to operate until the day of the sale.

Accordingly, the supply of the enterprise by you will satisfy all the requirements of a supply of a going concern under subsection 38-325(2) of the GST Act. Since the requirements of subsection 38-325(1) will also be met, the supply will be a GST-free supply of a going concern.

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