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Ruling
Subject: GST and sale of a retail store
Question
Is your acquisition of a retail store from a vendor a GST-free acquisition of a going concern?
Decision
Yes, under the provisions of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the vendor made a GST-free supply of a going concern to you and consequently, you made a GST-free acquisition of a going concern.
Relevant facts and circumstances
• You are the representative member of a GST group. As per our records, you are registered for goods and services tax (GST).
• X is your subsidiary and a member of the GST group. As per our records, X is registered for GST.
• X entered into a contract to purchase the enterprise of a retail store for a consideration of $A. As per our records, the vendor is registered for GST.
• The contract was settled on Date A. Immediately before the settlement of the contract the parties executed a Deed of Acknowledgment and Agreement (DAA).
• The contract provides for the vendor to supply the business assets which include goodwill, plant and equipment, stock, liquor licence and the float (physical cash in cash registers).
• The business is conducted from leased premises. As per the contract, X negotiated a new lease with the lessor, which commences on settlement of the contract.
• As per the contract, the vendor has agreed to continue to operate the enterprise as a going concern until the settlement. It is further confirmed on the DAA.
• Under the terms of the DAA, the parties acknowledge that the supply of the business assets under the contract constitutes a supply of a going concern within the meaning of Subdivision 38-325 of the GST Act and the supply is GST-free.
• Under the terms of the DAA, the vendor acknowledges that they have provided everything necessary for the enterprise to continue as a going concern.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - section 38-325
Reasons for the decision
In this case it is necessary to determine whether the vendor made a GST-free supply of a going concern to you at settlement. If so, your acquisition of the enterprise of the liquor store was a GST-free acquisition of a going concern.
Supply of a going concern
Section 38-325 of the GST Act provides that:
(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 part of a larger enterprise carried on by the supplier).
A supply will be a GST-free supply of a going concern, when all of the requirements in section 38-325 of the GST Act are satisfied.
Analysis
The vendor supplied the enterprise of retail store to your subsidiary X for consideration. X was registered for GST and was a member of your GST group. As per the contract and the DAA, the vendor and X have agreed in writing that the sale of the enterprise of retail store was a supply of a going concern. Accordingly, the requirements of subsection 38-325(1) of the GST Act were satisfied.
Supply under an arrangement
Subsection 38-325(2) provides that a supply of a going concern is a supply under an arrangement. The phrase 'supply under an arrangement' is discussed at paragraph 19-20 of the Goods and Services Tax Ruling GSTR 2002/5 (ruling), which discusses when is a supply of a going concern is GST-free.
What is a 'supply under an arrangement'?
19. A supply is defined in section 9-10. 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').
20. The supplier and the recipient may identify the arrangement and the supplies under the arrangement, which in aggregate, may comprise the 'supply of a going concern', in the written agreement which is required under paragraph 38-325(1)(c) or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. (Refer to paragraphs 178 to 185 for more details). However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made.2G
We consider that the contract and the DAA signed between the vendor and X constitutes an arrangement for the purposes of section 38-325 of the GST Act. It deals with the sale of an enterprise of a retail store with the goodwill, licence, stock, plant and equipment, float etc. Therefore, we consider that for the purposes of subsection 38-325(2) of the GST Act, the vendor supplied the enterprise of retail store to you under an arrangement.
Identified enterprise
Under paragraph 38-325(2)(a) of the GST Act, the supplier should supply to X all the things necessary for the continued operation of an identified enterprise.
Paragraph 29 of GSTR 2002/5 refers to the identified enterprise and state:
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.
We accept that the vendor carried on an enterprise of operating a retail store. It was the identified enterprise.
All of the things that are necessary for the continued operation of the identified enterprise
Paragraph 75 of GSTR 2002/5 explains the things that are necessary for the continued operation of an enterprise and state:
75. 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.
X has entered into an agreement with the owner of the premises to lease the premises from the settlement date. Accordingly, we accept that, at settlement, the vendor supplied to X all of the other things necessary for the continued operation of the identified enterprise.
Day of supply
Paragraphs 161 of GSTR 2002/5 refer to the day of supply and state:
The day of the supply
161. The day of the supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier. 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.
We consider that the vendor carried on the enterprise until the settlement date and satisfied paragraph 38-325(2)(b) of the GST Act.
Accordingly, the sale of the enterprise of retail store to X by the vendor satisfied all the requirements of section 38-325 of the GST Act as a GST-free supply of a going concern. Therefore, as the representative of the GST Group, you made a GST-free acquisition of the retail store.
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