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Edited version of your written advice
Authorisation Number: 1012706178543
Ruling
Subject: GST and acquisition of a supply of a going concern
Question
Will the acquisition of the business of providing school bus services by Company A from Company B be the acquisition of a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Advice
Yes, the acquisition of the business of providing school bus services by Company A from Company B will be the acquisition of a GST-free supply of a going concern under section 38-325 of the GST Act.
Relevant fact
Company A (you) has been set up as a Company by entities who are school bus operators in order to purchase the public transport school bus contracts and buses owned by Company B (supplier).You are registered for the goods and services tax (GST).
The supplier is registered for GST and currently the buses are housed in a depot facility owned by the supplier. The depot is not included in the sale of the business and could be available to a new owner at an agreed market rental rate. You advised you are not renting the depot from the supplier as you have your own depot for the housing of the buses after the purchase.
You have provided a copy of the draft contract you will have with the supplier. The contract provides the following amongst other things:
• Sale is for vehicles and goodwill.
• The contract is subject to and conditional upon Public Transport XXX consenting to the assignment of the school bus contract numbers.
• Motor vehicles.
• The purchaser warrants that it is registered for GST purposes and will remain registered prior to and during completion.
• The parties acknowledge and agree that the sale of the Assets under this contract, together with the supply of anything else by the vendor to the purchaser under this contract, constitutes a GST-free supply of a going concern.
• At completion, the vendor must, at its own cost (if any):
n deliver to the purchaser each of the plant, motor vehicles in good working order and condition (fair wear and tear excepted);
n assign to the purchaser all its right, title and interest in the business contracts and arrangements and deliver to the purchaser all required consents to such assignments.
• If the assignment of any of the business contracts and arrangements requires another party's consent the vendor must, until completion and at its own cost, use its reasonable endeavours with the co-operation of the purchaser to procure the consent of that other party to the assignment of those business contracts and arrangements from the completion date.
• The purchaser must provide to the vendor all information as is reasonably requested in order to obtain an assignment of the business contracts and arrangements.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 38-325
Reasons for decision
A supply of a going concern is GST-free if all the requirements in section 38-325 of the GST Act are satisfied.
Under subsection 38-325(1) of the GST Act, 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; and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
Subsection 38-325(2) of the GST Act provides the definition of a 'going concern'. It states:
(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 a part of a larger enterprise carried on by the supplier).
(*denotes a defined term in section 195-1 of the GST Act)
We will now determine whether the supply of the business of providing school bus services under the sale contract will be a supply of going concern under subsection 38-325(2) of the GST Act and will be GST-free under subsection 38-325(1) of the GST Act.
Subsection 38-325(2) of the GST Act
From the information received paragraphs 38-325(2)(a) and 38-325(2)(b) of the GST Act are satisfied as:
a) The supplier has entered into a sale contract with the purchaser for the sale of the buses and public transport school bus contracts that are essential for carrying on the supplier's business of providing school bus services. In this instance the supplier will be supplying all the things necessary for the purchaser to continue carrying on the business of providing school bus services that they currently carry on.
As for the depot which the supplier currently uses to house the buses it is not one of the things that is essential for the continued operation of the supplier's business of providing school bus services and therefore not necessarily to be supplied under the sale contract in order for the supplier's sale to qualify as a supply of a going concern.
b) The supplier will be carrying on the business of providing school bus services until the day of the supply which is the settlement date.
Accordingly, the supply of the business of providing school bus services will be a supply of going concern under subsection 38-325(2) of the GST Act.
Subsection 38-325(1) of the GST Act
Based on the information received, the requirements in subsection 38-325(1) are satisfied are:
a) The supplier will receive consideration when selling the buses and public transport school bus contracts which are essential for the carrying on of the business of providing school bus services ;
b) The purchaser is registered for GST; and
c) The supplier and purchaser have agreed in writing that the supply of buses and public transport school bus contracts will be of a going concern.
Accordingly, the supply of the business of providing school bus services by the supplier will be GST-free supplies under subsection 38-325(1) of the GST Act.
For more information on supply of a going concern please refer to Goods and Services Tax Ruling GSTR 2002/5 which is available from the legal database of www.ato.gov.au
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