Edited version of private ruling

Authorisation Number: 1011702022134

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Ruling

Subject: GST and going concern

Question 1

Will the sale of your "Assets" under the sale and purchase agreement (SPA) be a GST-free 'supply of a going concern' where the supply of those Assets is contractually agreed to be the 'supply of a going concern' and excludes unbilled income, debtors and the hedge contracts (in any combination or all of them)?

Answer

Yes, the sale of your "Assets" under the SPA will be a GST-free 'supply of a going concern' where your supply of those Assets is contractually agreed to be the 'supply of a going concern' and excludes unbilled income, debtors and the hedge contracts (in any combination or all of them).

Question 2

Will your GST liability for your pre completion supplies, that are invoiced post completion, and your attribution of that GST liability be determined based on an estimate agreed between you and the purchaser for the purposes of the SPA?

Answer

This question to be answered at a later date.

Question 3

Will the amount collected by the purchaser (as your billing agent) and remitted to you be outside the scope of the GST?

Answer

No, the amount of consideration collected by the purchaser (as your billing agent) and remitted to you will not be outside the scope of the GST. This is because the amount of consideration collected by the purchaser (as your billing agent) and remitted to you is consideration for a taxable supply made by you to your customers.

This means that you will have to remit GST on the amount of consideration that the purchaser collects and remits to you.

However, the purchaser, as billing agent, will not have a GST liability in relation to that amount.

Question 4

Will the Commissioner exercise his discretion to treat as valid tax invoices and adjustment notes documents containing only the purchaser's name and ABN; notwithstanding those documents contain an un-dissected amount of charges relating to your pre completion supplies?

Answer

Yes, the Commissioner will exercise his discretion to treat as valid tax invoices and adjustment notes documents that contain only the purchaser's name and ABN, notwithstanding these documents contain an un-dissected amount of charges relating to your pre completion supplies.

Question 5

Will you be entitled to claim a bad debt decreasing adjustment based on the bad debt methodology (anticipated non-recovery) provided by you, even though the debts due to you as at completion are not assigned to the purchaser?

Answer

This question to be answered at a later date.

Question 6

Will you be entitled to claim a bad debt decreasing adjustment on the estimation of non-collectability of unbilled income for each of the 3 monthly tax periods post completion?
Answer

This question to be answered at a later date.

Question 7

If the purchaser includes an equal increasing adjustment in its BAS for each of the bad debt decreasing adjustments in questions 5 and 6 above, is the purchaser entitled to claim bad debt decreasing adjustments as and when the purchaser writes off any debts as bad?
Answer

This question to be answered at a later date.

Question 8

Will the purchaser be liable to remit a GST increasing adjustment in the event:

(a) a debt relating to your pre completion supplies is written off as bad; and

(b) the purchaser has claimed the GST bad debt decreasing adjustment; and

(c) amounts are subsequently recovered in respect of that debt?

Answer

This question to be answered at a later date.

Relevant facts and circumstances

You, are registered for goods and services tax (GST).

The New South Wales (NSW) Government proposes to restructure your industry.

A component of this proposed restructure involves the sale to the private sector of the retail businesses of State-owned Corporations (SOCs). You are a SOCs.

As part of your retail activities, you sell a product to contestable and regulated customers within your area, as well as to contestable customers in other parts of Australia.

You operate your retail business through a management structure that is separate to your business, has a system of internal user charging, a separate budget, and has agreements/arrangements with internal service providers.

You have retail agreements with your customers which are separate from your agreements.

You are a retailer of your product to customers in Australia. You hold licences to retail in all of the regions in Australia.

Broadly, it is proposed that you may sell (including by assignment) the following retail assets under the SPA which we reviewed in providing our previous "going concern" ruling:

· all of the rights, interests and entitlements of the Vendor under or arising out of the Retail Business Contracts;

· the Retail Business Intellectual Property

· the Former Customer Debtors;

· the Retail Business Materials;

· the Surplus Green Rights; and

· the Goodwill.

The above assets will be the assets that comprise the identified "going concern" in the SPA. You may exclude the right to unbilled income, debtors and the hedge contracts (in any combination or all of them) from the assets being contractually agreed to be supplied as a "going concern". That is, unbilled income and debtors may not be transferred to the purchaser at all. The hedge contracts may be transacted for separately from the identified "going concern" under the SPA.

The Commissioner previously provided a GST private ruling to you confirming that your supply of the assets under the SPA to the purchaser is a GST-free "supply of a going concern". The Commissioner also provided a GST private ruling to you in respect of various GST transitional issues relating to the supply of the assets.

This private ruling provides the Commissioner's decision on whether you will still make a GST-free "supply of a going concern" in respect of the SPA we previously ruled upon when:

· the right to unbilled income is not transferred to the purchaser; and/or

· the right to debtors is not transferred to the purchaser; and/or

· the assets that comprise the identified "going concern" do not include the hedge contracts (albeit that the hedge contracts will still form part of the overall Assets being transferred to the Purchaser).

Further, this private ruling outlines whether the Commissioner will accept a methodology to be agreed by you and the purchaser for the purposes of the SPA to allow you and the purchaser to manage your GST obligations and entitlements if unbilled income and debtors are not transferred to the purchaser.

Further relevant facts to the rulings to be provided are as follows.

1. Unbilled income, debtors and hedge contracts

(a) Unbilled Income

Under the SPA, you will assign or novate to the purchaser all rights and obligations in relation to retail business contracts, including customer contracts. However, it is proposed that you may offer to assign or novate to the purchaser only rights arising under customer contracts where those rights arise on and from completion. In effect, rights and obligations arising under customer contracts pre completion may be retained by you.

As a consequence of this, you would retain your rights under the customer contracts to bill customers for supplies made prior to completion, but not billed at completion ("unbilled income"). Where you offer to assign or novate rights arising under customer contracts only on and from completion, you will receive the revenue for the pre completion supplies via an estimated billing methodology discussed in point 2 below (estimate and payment methodology).

You have submitted that the exclusion of unbilled income from the assets supplied will not change the Commissioner's view as set out in the previous private ruling that your supply is of a "going concern".

(b) Debtors

As noted above, under the SPA, you will assign or novate to the purchaser all rights and obligations in relation to retail business contracts, including customer contracts. However, it is proposed that you may not assign or novate to the purchaser the rights to receive amounts relating to pre completion supplies that you invoice pre completion (the "debtors"). That is, the right to collect the debt associated with your pre completion supplies may be excluded from the other rights and obligations associated with the customer contracts when they are assigned or novated to the purchaser.

In the event these rights are not novated or assigned to the purchaser, any customer debts in existence at the date of completion will be retained by you as debts due to you.

You have submitted that the exclusion of the debtors from the assets supplied will not change the Commissioner's view as set out in the previous private ruling that your supply is a supply of a "going concern".

(c) Hedge Contracts

You will transfer the hedge contracts to the purchaser. However, in order to provide bidders with maximum flexibility, you may transfer the hedge contracts to the purchaser as an input taxed financial supply, with the remainder of the assets being supplied as a GST-free "supply of a going concern".

A relevant retailer enters into relevant derivative contracts to hedge against volatile spot prices in the relevant market. That is, whilst the retailer has fixed prices for its supplies to its customers, the spot prices for its acquisitions of the relevant product can fluctuate. The derivative contracts are a hedge against potential losses in the event the spot price for relevant increases substantially.

The hedge contracts in the current transaction are contracts that you have entered into pre completion that will run their course post completion. That is, the hedged spot prices for the relevant product for varying periods post completion have been locked in by you pre completion. It is these hedge contracts that will be transferred to the purchaser.

You have submitted that if the assets comprising the "supply of a going concern" do not include hedge contracts, the supply of these assets will still be a GST-free "supply of a going concern".

2. Estimate and payment methodology

The government is prepared to direct you to sell your retail business without the rights relating to your unbilled income as at completion. In this event, post sale date, you will invoice your former customers for your pre completion supplies, albeit via a billing agency arrangement with the purchaser. In practice, the billing will be performed by you in your capacity as service provider under a Transitional Services Agreement (TSA). You will appoint the purchaser as your agent, on and from completion, to invoice and collect the unbilled income.

The purchaser will issue bills to its customers for your pre completion supplies as billing agent for you and will remit those amounts to you on a monthly basis under an agreed payment schedule. The schedule will include a methodology that prescribes an agreed estimate of the recovery of unbilled income balances invoiced and collected after completion. You will remit the GST on this unbilled income to the Tax Office.

In a previous private ruling issued by the Commissioner to you regarding GST on these pre completion supplies, the Commissioner accepted that your GST liability for pre completion supplies can be remitted on the purchaser's BAS. The Commissioner was asked to approve this request on the basis that for mass market customers it was not possible to value your product by the completion date. This meant that it was not possible to determine the portion of GST invoiced by the purchaser post completion that related to your pre completion supplies. As the purchaser invoiced the customer for your pre completion supplies and retained the revenue, it was appropriate for the purchaser to remit this GST to the Tax Office.

By comparison, where you do not transfer to the purchaser the unbilled income, the purchaser will pay to you the GST inclusive proceeds relating to your pre completion supplies. The following matters deal with the quantum of your GST liability for your pre completion supplies, and the attribution of this GST liability.

(a) Calculation of your GST liability

For mass market customers (who are on accumulation meters), it is impossible to value your product on the completion date. This means that the value of your supplies made up until midnight on the day before completion cannot be ascertained with accuracy. However, the value of these supplies can be estimated using customer consumption patterns and taking into account seasonal factors. The parties will estimate and agree on your unbilled income as at completion date for the purposes of the SPA.

You will also make supplies to Commercial and Industrial ("C&I") customers. These customers are on different product measurement, which will provide precise data on customer consumption up until midnight on the day before completion. Whilst the purchaser will invoice this amount as billing agent for you, you will have precise data on its supplies to C&I customers, and will therefore have an accurate GST liability to remit to the Tax Office.

You have requested that the Commissioner confirm that your GST liability for your pre completion supplies can be based on the estimate used for the purposes of the SPA.

(b) Attribution of your GST liability on your unbilled income

For mass market customers, you and the purchaser will agree on a methodology in the SPA for the purchaser to pay to you the GST inclusive amount it invoices as your agent. For each of the 3 months post completion, the purchaser will pay to you the amount of revenue estimated in the SPA as relating to your pre completion supplies to your mass market customers, less an allowance for non-collectability. Mass market customers are on a time billing period.

For the mass market customers, the purchaser would pay monthly amounts to you for your pre completion supplies using a calculation that (a) reflects that more of the price billed by the purchaser in Month 1 relates to your pre completion supplies, as compared with the price for supplies to customers billed in Month 3, and (b) the collection profile of these customers. This calculation will be agreed in the SPA.

For C&I customers, the purchaser would pay monthly amounts to you for your pre completion supplies using a different calculation methodology to the mass market customers. This is to reflect the different collection profiles for the C&I customers. Once again, this calculation will be included in the SPA.

You have requested that the Commissioner confirm that the attribution for your GST liability for your pre completion supplies aligns with your receipt of the 3 monthly payments from the purchaser as your billing agent.

(c) True-up process

Following the end of the 3 month billing cycle relating to pre completion supplies, you will provide a statement to the purchaser showing the total mass market and C&I amounts billed post completion relating to pre completion supplies. This will be referred to as the "Subsequent Billing Methodology".

An adjustment will be made to reflect the difference between the amount paid to you by the purchaser as per the original calculation, and that calculated under the Subsequent Billing Methodology.

The adjustment will be invoiced (including providing a credit note where the amount under the Subsequent Billing Methodology is less than that paid to you) by you and paid or credited by the purchaser.

You have requested the Commissioner to confirm a methodology set out in your ruling request.

3. Purchaser's payment to you as billing agent

As noted above, for each of the first 3 months post completion, you will issue an invoice to the purchaser for the purchaser to remit to you the amounts calculated under the estimated methodology agreed in the SPA. These payments will be an estimate of your charges for your pre completion supplies.

You have requested that the Commissioner confirm that the purchaser's payment to you of the amount collected as your billing agent is outside the scope of GST.

4. Tax invoices and adjustment notes

As the customer contracts will be transferred to the purchaser, the purchaser will require full control over the invoicing of its new customers. Commercially, it would not be acceptable for you to invoice your previous customers for your pre completion supplies. Hence, the purchaser will be invoicing its customers as principal for its supplies made on and from completion, and as your billing agent for your pre completion supplies.

As mass market customer meters cannot be read on completion, it will not be possible to set out on the tax invoices issued to the customers the charges relating to the purchaser's supply to the customer post completion vis a vis those charges relating to your supplies pre completion.

Furthermore, from a systems perspective, prohibitively expensive system changes would be required for the tax invoices issued post completion to contain both the purchaser's name and ABN, and your name and ABN.

In the case of C&I customers which are invoiced monthly, for commercial reasons the purchaser will require its name and ABN to appear on those tax invoices (and not your name and ABN), notwithstanding that all of the charges on the invoice may relate to your pre completion supplies.

You will sell to the purchaser your business names, effective on and from completion. Hence, any reference in this section to the "purchaser's name" is in fact a reference to your current business name.

You have requested the Commissioner to exercise his discretion to treat as valid tax invoices and adjustment notes that contain only the purchaser's name and ABN, notwithstanding these documents contain an un-dissected amount of charges, including those relating to your pre completion supplies.

5. Bad debts - Debtors

You have advised that there is significant compliance cost in distinguishing debts written off post completion that relate to your pre completion supplies as compared with the purchaser's post completion supplies.

For this reason, the Commissioner provided you with a previous ruling. That ruling mentioned that you could claim a bad debt decreasing adjustment, based on anticipated non recovery, provided the purchaser includes an increasing adjustment in its BAS equal to the bad debt decreasing adjustment claimed by you and that, the purchaser was entitled to the bad debt decreasing adjustments as and when the purchaser writes off any of the debts as bad post completion This ruling enabled the purchaser to simply claim all bad debt decreasing adjustments on and from completion, without having to determine whether it or you made the original taxable supply.

The facts you provided to the Commissioner in your earlier ruling request stated that you would assign your debtors to the purchaser on completion. You have now advised that you may now not assign your debtors to the purchaser.

You have proposed the following methodology for the Commissioner's approval:

You are entitled to a GST bad debt decreasing adjustment of 1/11th of the GST provision for doubtful debts. This is an estimate of your future GST bad debt decreasing adjustments. The purchaser will have a corresponding increasing adjustment. This is an estimate of the purchaser's overclaim of bad debt decreasing adjustments when it writes off your debts as bad post completion and includes the decreasing adjustments in its net amounts. The inclusion of this bad debt decreasing adjustment in the purchaser's net amount will occur by virtue of the system limitation, being the inability to distinguish bad debts as relating to your original taxable supplies or those of the purchaser.

6. Bad debts - Unbilled income

Point 6 relates to debts that arise after completion for your pre completion supplies. That is, you make pre completion supplies for which the purchaser issues an invoice post completion as your billing agent. The amount invoiced by the purchaser is the "unbilled income" (as at completion) referred to above.

Where the debts relating to the "unbilled income" are written off as bad, you have advised that it is imperative from a systems perspective that the purchaser can claim the bad debt decreasing adjustment. This will mean that the purchaser will be entitled to the GST bad debt decreasing adjustment for all debts written off as bad post completion, irrespective of whether you or the purchaser made the original taxable supply. You have advised that without significant systems changes, the retail billing systems would not be able to differentiate between bad debts relating to the purchaser's supplies and those relating to your supplies in order to allocate the GST decreasing adjustment to the correct entity.

As noted above, in each of the 3 months post completion, the purchaser will pay to you the amount estimated in the SPA as relating to your pre completion supplies.

For both mass market and C&I customers, the purchaser's monthly payments to you will be reduced by an estimated allowance for non-collectability (effectively, a provision for doubtful debts on the unbilled income). This estimated allowance for non-collectability will be between 0.1% and 5% of the GST inclusive amount of unbilled income, with the final percentage agreed between the parties and reflected in the SPA.

You have provided the following bad debt methodology to allow you to claim a GST decreasing adjustment for the estimation of non collectability on the unbilled income for each of the 3 monthly tax periods post completion:

You have requested that the Commissioner accepts the estimated allowance for non-collectability used in the SPA as the basis for calculating your GST bad debt decreasing adjustment. The purchaser will have a corresponding and equal GST increasing adjustment. In effect, this is an estimate of the purchaser's overclaim of bad debt decreasing adjustments when it writes off your debt as bad post completion, and includes the decreasing adjustments in its net amounts.

Reasons for decision

Question 1

Will the sale of your "Assets" under the sale and purchase agreement (SPA) be a GST-free 'supply of a going concern' where your supply of those Assets contractually agreed to be the 'supply of a going concern' exclude unbilled income, debtors and the hedge contracts (in any combination or all of them)?

Summary

Yes, the sale of your Assets under the SPA will be a GST-free 'supply of a going concern' where your supply of those Assets contractually agreed to be the 'supply of a going concern' exclude unbilled income, debtors and the hedge contracts (in any combination or all of them).

Detailed reasoning

Requirements of subsection 38-325(1) of the GST Act

Subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that a '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 for GST; and

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

 (Asterisks denote terms defined in section 195-1 of the GST Act.)

In your case, the supply is for consideration, the recipient is registered or required to be registered and both parties have agreed in writing that the supply is of a going concern.

Hence, the requirements of subsection 38-325(1) of the GST Act will be satisfied.

Requirements of subsection 38-325(2) of the GST Act

Subsection 38-325(2) of the GST Act states that 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 part of a larger enterprise carried on by the supplier).

A supply will be a 'supply of a going concern' where the arrangement satisfies paragraphs 38-325(2)(a) and (b) of the GST Act and the relevant supply is made under that arrangement.

Identified enterprise

Goods and Services Tax Ruling, Goods and services tax: when is a supply of a going concern GST-free? (GSTR 2002/5) provides the Commissioner's view on GST-free supplies of going concerns. GSTR 2002/5 states the following in regards to the sale of a going concern which is a part of a larger enterprise.

29. Subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise.

30. Where the enterprise identified for the purpose of subsection 38-325(2) forms part of a larger enterprise, a supply is a 'supply of a going concern' when all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied.

In your case, as part of your retail activities, you provide your product to contestable and regulated customers within your network area as well as to contestable customers in other parts of NSW and in other States.

You state that your retail business will be supplied to the private sector while the network function will continue to be owned by you.

You operate your retail business through a management structure that is separate to your network business, has a system of internal user charging, have a separate budget, and have agreements/arrangements with internal service providers.

Further, you have retail agreements with your customers which are separate from your network agreements.

Therefore, the 'identified enterprise' that will be supplied by you is the retail business.

All things necessary for the continued operation

Further, GSTR 2002/5 considers the meaning of the phrase 'all of the things that are necessary for the continued operation of the enterprise'.

In particular, paragraph 74 of GSTR 2002/5 provides that a 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.

Paragraph 47 of GSTR 2002/5 states the term 'thing' is defined in section 195-1 of the GST Act as anything that can be supplied or imported.

Paragraph 72 of GSTR 2002/5 provides that the term 'necessary' incorporates the attributes of an enterprise that are essential for the continued operation of the 'identified enterprise'. The things that are 'necessary' will depend on the nature of the enterprise carried on and the core attributes of that enterprise. Paragraph 72 further specifies that the term 'all of the things that are necessary' does not refer to every conceivable thing which might be used in the 'identified enterprise'.

Paragraph 75 of GSTR 2002/5 states that two elements are 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.

Assets

Under the SPA you may sell (including by assignment) the following assets:

· all of the rights, interests and entitlements of the Vendor under or arising out of the Retail Business Contracts;

· the Retail Business Intellectual Property;

· the Former Customer Debtors;

· the Retail Business Materials;

· the Surplus Green Rights; and

· the Goodwill.

In summary, you may supply the following "essential" assets in respect of the retail business:

· Goodwill of, or attaching to, the retail business;

· Customer contracts for the retail sale of the relevant products, including contracts deemed to exist by the operation of law;

· The retail brands, being the business names and trade names; and

· Books and records for the retail business.

You contend that where the above assets are supplied to the purchaser, you will have supplied all the assets necessary for the continued operation of the 'identified enterprise'.

You further submit that the supply of the above assets is evidence that you will supply to the purchaser the "operating structure and process" of your retail business. That is, by acquiring the retail business contracts, the purchaser will take over your retail business customers and your key relevant product acquisition arrangements. Further, your supply of the retail business materials (i.e. the books and records) to the purchaser indicates that the purchaser is acquiring your "business process" (being its "commercial or economic activity").

You advised that in order to provide bidders with maximum flexibility, you may exclude unbilled income, debtors and the hedge contracts in any combination or all of them from the supply those assets contractually agreed to be the 'supply of a going concern' .

You submit that unbilled income, debtors and the hedge contracts, in any combination or all of them, are not things that are necessary for the continued operation of the retail business.

(a) Unbilled income.

You may retain your right under the customer contracts to bill customers for supplies made prior to completion, but not billed at completion known as unbilled income.

You submit that it is common practice in asset sales, including those assets sales for business where a vendor makes progressive supplies, for a vendor to only supply to the purchaser rights and obligations arising under customer contracts post completion.

(b) Debtors

You may not assign or novate to the Purchaser the rights to receive amounts relating to pre completion supplies that you invoice pre completion (the debtors). That is, the right to collect the debt associated with your pre completion supplies may be excluded from the other rights and obligations associated with the customer contracts when they are assigned or novated to the Purchaser. You will retain them as debts due to you.

You will supply the customer contract to the Purchaser, without a right to the receivable for supplies made by you and invoiced pre completion.

You submit that it is common practice in business asset sale that receivables for supplies invoiced by the vendor prior to completion remain in the account of the vendor and are not assigned or novated to the Purchaser.

(c) Hedge contracts

You will transfer the hedge contracts to the Purchasers. However, in order to provide bidders with maximum flexibility, you may transfer the hedge contracts to the Purchaser as an input taxed financial supply, with remainder of the Assets being supplied as a GST-free supply of a going concern.

You submit that if the Assets comprising the supply of a going concern do not include the hedge contracts, the supply of these Assets will still be a GST-free supply of a going concern.

You submit that the hedge contracts are not one of things that are necessary for the continued operation of the retail enterprise. Whilst hedge contracts are a means of protecting profit, you submit that a relevant retail enterprise can continue to be operated by the recipient (without interruption) on day one of the enterprise without these existing hedge contracts.

We accept that unbilled income, debtors and the hedge contracts (in any combination or all of them) are not things that are necessary for the continued operation of your retail business.

Supplier carries on the enterprise until the day of the supply

Paragraph 141 of GSTR 2002/5 states:

Supplier carries on the enterprise until the day of the supply

141. The supply of everything necessary for the continue operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

Under paragraph 38-325(2)(b) of the GST Act 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.

The day of the supply occurs when the supplier has done everything to satisfy the obligations under the contract or arrangement governing the supply and the recipient has assumed effective control and possession of all of the things that are necessary for the continued operation of the enterprise (refer to paragraph 161 of GSTR 2002/5).

In your case, provided that, you carry on the retail business operation until the day of the supply, we consider that the supply of the Assets under the SPA, will satisfy the requirements of paragraph 38-325(2)(b) of the GST Act.

Accordingly, provided you supply all Assets under the SPA, except for unbilled income, debtors and hedge contracts (in any combination or all of them), the sale of your Assets will be a GST-free 'supply of a going concern'.

Note:

You advised that under the SPA you may sell (including by assignment) the following assets:

· all of the rights, interests and entitlements of the Vendor under or arising out of the Retail Business Contracts;

· the Retail Business Intellectual Property;

· the Former Customer Debtors;

· the Retail Business Materials;

· the Surplus Green Rights; and

· the Goodwill.

Where any of the above mentioned assets are not provided to the purchaser, the Commissioner may not consider your supply to be a GST-free supply of a going concern (see paragraph 75 of GST 2002/5 above).

Question 3

Will the amount of consideration collected by the purchaser (as your billing agent) and remitted to you be outside the scope of the GST?

Summary

No, the amount of consideration collected by the purchaser (as your billing agent) and remitted to you will not be outside the scope of the GST. This is because the amount of consideration collected by the purchaser (as your billing agent) and remitted to you is consideration for a taxable supply made by you to your customers.

This means that you will have to remit GST on the amount of consideration that the purchaser collects and remits to you.

However, the purchaser, as billing agent, will not have a GST liability in relation to that amount.

Detailed reasoning

Under the SPA, you will offer to assign or novate to the purchaser only those rights arising under customer contracts where those rights arise on or after the completion date.

In effect, rights and obligations arising under customer contracts pre completion may be retained by you. Post completion, you will invoice your former customers for your pre completion supplies, albeit via a billing agency arrangement with the purchaser. In practice, the billing will be performed by you in your capacity as a product provider. You will appoint the purchaser as your agent to invoice and collect the unbilled income on and from completion.

For each of the first three months post completion, you will issue an invoice to the purchaser for the purchaser to remit to you the amounts calculated using the methodology as agreed in the SPA. These payments will be an estimate of your charges for the pre completion supplies.

The purchaser will remit those amounts to you on a monthly basis under an agreed payment schedule. This schedule will include a methodology that prescribed an agreed estimate of the recovery of unbilled income balances invoiced and collected after completion. You will remit the GST on this unbilled income to the ATO.

Goods and Services Tax Ruling (GSTR 2000/37) describes what is meant by principal/agent relationships

Paragraph 10 of GSTR 2000/37 provides that an intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal.

Paragraph 15 of GSTR 200/37 provides that when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

Therefore, where a principal makes a taxable supply the GST on that taxable supply is payable by the principal.

Similarly, the principal is entitled to input tax credits relating to the making of that taxable supply.

In your case, the amount collected by the purchaser as your billing agent and remitted to you relates to supply made by you to your customers.

As such the amount collected by the purchaser (as billing agent) and remitted to you will not be outside the scope of the GST and accordingly, you will have a GST liability regarding the amount of consideration remitted to you.

Question 4

Will the Commissioner exercise his discretion to treat as valid tax invoices and adjustment notes documents containing only the purchaser's name and ABN, notwithstanding these documents contain an amount of charges relating to your pre completion supplies?

Summary

Yes, the Commissioner will exercise his discretion to treat as valid tax invoices and adjustment notes documents containing only the purchaser's name and ABN, notwithstanding these documents contain an amount of charges relating to your pre completion supplies.

Detailed reasoning

As provided in the facts, mass market customer meters cannot be read on completion. This means that the value of your supplies made up until midnight on the day before completion cannot be ascertained with accuracy. Therefore, it will not be possible to ascertain from the tax invoices the charges that relate to pre and post completion supplies respectively.

You further submit that for completeness, you will sell to the purchaser your business name, effective on and from completion. Hence any reference in this section to the 'purchaser's name' is in fact a reference to your current business name.

The requirements for a valid tax invoice are set out in subsection 29-70(1) of the GST Act. One of the legislative requirements is that a tax invoice must be issued by a supplier.

In your case, the tax invoice must contain the identity and ABN of the supplier which would be you where you have made supplies of the relevant product prior to completion date instead of the purchaser. Therefore in respect of supplies of the relevant product made by you, the legislative requirements for a valid tax invoice will not be met under the arrangement as only the name and ABN of the purchaser will be included in the tax invoice.

However, subsection 29-70(1B) of the GST Act allows the Commissioner to exercise his discretion to treat a document as a tax invoice, despite the fact that it does not comply with all the legislative requirements.  This discretion allows some flexibility where the document in question may not meet all the strict requirements of a tax invoice but it is reasonable for the document to be treated as a tax invoice.

Therefore, it is necessary to consider whether the Commissioner can determine to treat the documents to be issued by the purchaser as valid tax invoices.

Practice Statement Law Administration PS LA 2004/11 provides guidance on what factors the Commissioner will consider when exercising his discretion to treat a document as a tax invoice. Attachment A of PS LA 2004/11 considers the Commissioner's discretion in respect of a supplier.

Paragraph 4 of Attachment A of PS LA 2004/11 indicates that the exercise of the discretions may also be sought by a supplier in respect of documents that are yet to be issued.

Example 8 of Attachment B of PS LA 2004/11 provides an example where the Commissioner will exercise his discretion under subsection 29-70(1B) of the GST Act in a merger situation where from the merger date, tax invoices will be issued in the name of the new entity but most of their customers will receive bills that span the merger date.

Based on this, the Commissioner will, under subsection 29-70(1B) of the GST Act, exercise his discretion and:

i) treat the tax invoices for unbilled income as valid where they are issued by the purchaser; and

ii) treat the adjustment notes issued by the purchaser in respect of any adjustments to the price of the unbilled income.

The above discretion will only be exercised where customers are duly notified in writing that the invoices issued by the purchaser will be treated as valid tax invoices in respect of the relevant product supplied in the billing period spanning the sale date.

The Commissioner will, under subsection 29-70(1B) of the GST Act, exercise his discretion and treat as valid tax invoices and adjustments notes documents issued by the purchaser which contain amounts of the relevant product supplied and invoiced by you prior to completion date provided all the legislative requirements for a tax invoice are met. The tax invoice or adjustment note in this case will have the name and ABN of the purchaser instead of yours.

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