Edited version of your private ruling

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Ruling

Subject: GST and supply of a going concern

Question

Is the supply of Sale Interests by you, pursuant to the Sale and Purchase Agreement 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 supply of the Sale Interests by you, pursuant to the Sale and Purchase Agreement is a GST-free supply of a going concern in accordance with section 38-325 of the GST Act.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You provided the following information in relation to the request for a private ruling:

§ You are a wholly owned subsidiary of a larger entity and registered for goods and services tax (GST) and you are a member of a GST group.

§ You have acquired a mining property in the past and have conducted various feasibility studies exploring various mining and processing alternatives for the development of the mining project. A draft Environmental Review and Management Plan was also prepared.

§ You advised us that the feasibility study stages have been completed and at present you are engaged in identification stages prior to the commencement of mining activities.

§ For commercial reasons, you have decided to divest your interest in the mining project for various reasons.

§ You signed an agreement to sell the interest in the mining project subject to relevant approvals from the Australian Foreign Investment Review Board and the Government of your State.

§ The purchaser is registered for GST.

Pursuant to the Sale and Purchase Agreement, the purchaser agreed to acquire the interest from you, subject to the following conditions:

· Foreign Investment Review Board approval, which has been approved.

· Execution of a Letter of Comfort, which has been executed; and

· Deed of Covenant - Transfer of State Agreement.

The mining project means the development of an open cut mine including associated infrastructure and facilities pursuant to and in accordance with the State Agreement.

The mining project site means the land the subject of the Owned Mining Tenements and Tenure Arrangements.

The sale of mining interests includes assets and the contractual rights, comprising:

§ Owned Mining Tenements;

§ Tenure Arrangements;

§ Other Licences and Approvals;

§ Project Assets and Infrastructure;

§ Project Intellectual Property; and

§ The Records.

The mining interests comprise everything required for the continuation of mining project, including, accommodation dwellings, shipping storage containers, radiation office and laboratory, weather station, tanks, radio station, various radiation monitors and air samplers, various mining tenements, ground water licences and access to Other Pastoral Leases ("OPL").

You advised us that the supply of key personnel (staff) is not necessary as the purchaser is also engaged in mining activities and has the capability of engaging their own key personnel for the continued operation of the enterprise.

You have agreed to carry on the mining project until the day of supply to the purchaser. In the period between signing of the Sale and Purchase Agreement and settlement of the transaction, you will continue to undertake activities at the mining project. This is supported by the Sale and Purchase Agreement which provides for a purchase price adjustment to cover additional costs incurred by you during this interim period.

Under the Sale and Purchase Agreement, except with the prior written consent of the purchaser, you must ensure that until completion:

(a) the business of the mining project is carried on substantially in the manner that, as at the date of the Sale and Purchase Agreement, it is being carried on by you with no significant change made to the nature or scale of any activity comprised in the mining project as at the date of the agreement (and, to avoid any doubt, this business includes entering into access agreements with third parties in relation to the Pastoral Lease (but excepting any area of the Pastoral Lease the subject of the State Agreement Tenements));

(b) the mining project is conducted in accordance with all applicable laws;

(c) no mining interest is disposed of nor any Encumbrance (other than a Permitted Encumbrance) granted over a mining interest, except to the buyer; and

(d) no member of the GST Group does anything, or omits to do anything, that might result in the termination or variation of a contract, except in a manner expressly contemplated by this agreement.

As per the Sale and Purchase Agreement, you at completion must procure that, pursuant to the terms of the applicable agreements:

You deliver to the purchaser:

(a) Domain Names in respect of each Domain name, the authorisation code for the Domain name and any additional documentation needed to transfer the ownership of the Domain name; and

(b) Trade Mark a completed and executed application to record an assignment or transmission of a Trade Mark required under the Trade Mark Act 1995 (Cth) in respect of the Trade Mark; and

(c) E36/77 transfer an instrument of transfer executed by you as transferor in favour of the purchaser as transferee of E36/772, and in registrable form (save for stamping and execution by the buyer); and

(d) Indicia of title all available indicia of title (including all licence instruments (if any) issued in respect of E36/772.

The Sale and Purchase Agreement states the following in relation to GST:

(a) The seller and the purchaser agree that the supply of the mining interests by the seller to the purchaser is of a going concern.

(b) The seller represents and warrants to the purchaser that under this agreement the seller supplies to the purchaser all of the things that are necessary for the continued operation of the enterprise described in this document.

(c) The seller must carry on until completion, which will be the day of supply, the enterprise described in this document.

(d) The purchaser represents and warrants to the seller that on completion the purchaser is registered and its Australian Business Number is as stated above, or that on completion the purchaser is required to be registered and has applied for registration.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 38-325

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

A supply is a GST-free supply of a going concern when all the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

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

Based on the information provided by you, the supply of the mining interest is for consideration, the recipient is registered for GST and both parties have agreed in writing that the supply is of a going concern. Therefore, the requirements of subsection 38-325(1) of the GST Act have been met.

Supply under an arrangement

A 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act as a supply under an arrangement where:

(e) the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and

(f) 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)

Although the word arrangement is not defined in the GST Act, Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) explains at paragraph 19 that the term supply under an arrangement includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement provided the things supplied relate to the identified enterprise. The supply of the mining interest by you under the Sale and Purchase Agreement and other supply of rights are considered as supplies under an arrangement.

Identified enterprise

GSTR 2002/5 provides guidance on when a 'supply of a going concern' is GST-free. Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). Once the enterprise is identified, it is the supply in relation to that enterprise that must meet the requirements of subsection 38-325(2) of the GST Act.

The term 'enterprise' is defined in section 9-20 of the GST Act to include an activity, or series of activities, done in the form of a business or in the form of an adventure or concern in the nature of trade.

You have been conducting various feasibility studies exploring various mining and processing alternatives for the development of the mining project. The mining project consists of open cut mine and processing including the associated infrastructure and facilities. You confirmed to us that at the time of entering into the Sale and Purchase Agreement, the feasibility studies have been completed. At present you are in the identification stages of planning prior to the commencement of mining activities.

Based on this information, it is considered that the activities undertaken by you in relation to the mining project satisfy the definition of an enterprise for the purposes of section 9-20 of the Act.

Subsection 38-325(2) of the GST Act recognises that a supplier might carry on an enterprise, described as a 'larger enterprise' within which the enterprise contemplated by paragraphs 38-325(2) (a) and (b) forms a part. The GST Act does not require that a whole enterprise be transferred for the supply to be GST-free under section 38-325 of the GST Act. The section requires that 'an enterprise' be continued and this may be part of a larger enterprise carried on by the supplier.

Paragraph 30 of the GSTR 2002/5 explains that where the enterprise identified for the purpose of subsection 38-325(2) of the GST Act 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.

Although you are a wholly owned subsidiary of a larger entity, the supply of the mining interest will be the supply of a going concern provided all of the things necessary to continue the operation of your identified enterprise are supplied.

Supply of all the things necessary

Subsection 38-325(2) of the GST Act requires that the supplier must supply all of the things necessary for the continued operation of the enterprise. The requirements in paragraphs 38-325(2) (a) and (2) (b) of the GST Act apply to the 'identified' enterprise.

In relation to the meaning of the phrase 'all of the things necessary for the continued operation of an enterprise', paragraph 80 of GSTR 2002/5 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.

Further, paragraph 75 of GSTR 2002/5 identifies two elements that are essential for the continued operation of an enterprise:

· the assets necessary for the continued operation of the enterprise, and

· the operating structure and process of the enterprise.

It is clear from paragraph 75 of GSTR 2002/5 that what is transferred must be more than the business assets of an identified enterprise.

Under the supply of the mining interest, you are making supplies of everything required for the continuation of the mining project including accommodation dwellings, shipping storage containers, office and laboratory, weather station, tanks, radio station, various monitors and air samplers, various mining tenements, ground water licences and access to Other Pastoral Leases. Apart from these supplies, you will supply the respective rights, titles and interest in the mining project and the mining assets to the purchaser under the arrangement.

The supply of contractual rights under the mining interests includes Owned Mining Tenements, Tenure Arrangements, Other Licences and Approvals, Project Assets and Infrastructure, Project Intellectual Property and the Records.

You advised us that the supply of key personnel as part of the identified enterprise is not necessary for the continued operation of the enterprise. The purchaser is carrying on mining activities and has the capacity to engage their own key personnel for the continued operation of the enterprise.

Therefore, based on the information provided, we consider that the supplier is supplying all of the things necessary for the continued operation of the enterprise under subsection 38-325(2) of the GST Act.

Enterprise carried on until the day of supply

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, or will be carried on, by the supplier until the day of supply. All of the activities of the enterprise must be active and operating on the day of supply. Paragraph 141 of GSTR 2002/5 advises that the activities must be capable of continuing after the transfer to the new ownership. The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. Paragraph 161 of GSTR 2002/5 explains that the day of supply is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier.

You have advised us that you have continued to operate the mining project since the signing date of the Sale and Purchase Agreement and have incurred substantial additional costs which will form part of the purchase price in accordance with the Sale and Purchase Agreement. Furthermore, the Sale and Purchase Agreement also confirms that you must carry on your enterprise until the completion which will be the date of supply. Therefore, we agree that the supply also satisfies paragraph 38-325(2)(b) of the GST Act.

On the basis that all of the requirements of section 38-325 of the GST Act have been met, the supply of the mining interest is a GST-free supply of a going concern.

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