Edited version of private advice

Authorisation Number: 1051816394523

Date of advice: 1 April 2021

Ruling

Subject: GST and sale of a business

Question

Is the sale of the business by the Vendor to the Purchaser a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

The supply of the business by the Vendor to the Purchaser is a GST-free supply of a going concern because all the requirements of section 38-325 of the GST Act are satisfied as follows:

• The Vendor supplied to the Purchaser all the things used in the business including the assignment of the Lease on the Premises from which the business is operated. Hence, we consider that all of the things necessary for the continued operation of the enterprise is supplied under the arrangement as required by paragraph 38-325(2)(a) of the GST Act.
• The requirement of paragraph 38-325(2)(b) of the GST Act is also met as the Vendor carried on the enterprise until the completion of the sale.
• The supply is made for consideration. Hence, the requirement of paragraph 38-325(1)(a) of the GST Act is met.
• The Purchaser is registered for GST. Hence, the requirement of paragraph 38-325(1)(b) of the GST Act is met.
• The Vendor and the Purchaser agreed in writing that the supply of the business is a supply of a going concern for the purposes of the GST Act. Hence, the requirement of paragraph 38-325(1)(c) of the GST Act is met.

Relevant facts

The Vendor has operated a business from leased premises for several years and is registered for GST.

The Vendor entered into the Agreement for Sale - Business (the Sale Agreement) with the Purchaser.

The Sale Agreement provides the Vendor agrees to sell and the Purchaser agrees to purchase the Assets for the Purchase Price and on the terms and conditions of the Agreement with effect from the open of business on the Date of Completion.

The Assets include goodwill, stock, plant and equipment, the Vendor's interest as lessee under the Lease, business name, leasehold improvements, the intellectual property, records and all other assets of the Vendor referable to the business.

The plant and equipment included in the sale are listed in Schedule 1 of the Sale Agreement.

The premises are leased from the property owner ABC Pty Ltd.

Sale Agreement provides that the Purchase Price is the aggregate sum of a certain amount and the value of the stock. Sale Agreement provides for the calculation of the value of the stock.

The Sale Agreement provides that soon as practicable after executing the Sale Agreement, the Purchaser will seek the approval of the property owner to the assignment of the Lease by the Vendor to the Purchaser. If the Property Owner consents to the assignment of the Lease, then at completion the Vendor and the Purchaser must do everything that is necessary to facilitate the assignment of the Lease, including executing and exchanging an assignment of the Lease.

The Sale Agreement also provides that the Vendor shall use their best endeavours to introduce and recommend the Purchaser to customers and suppliers of the Business and also give to the Purchaser such assistance and advise as they may reasonably require in acquiring a knowledge of the Business. The Vendor shall be available to attend the Leased Premises during normal business hours, during the training period of not less than 14 days after Completion, to assist the Purchaser to gain knowledge concerning the Business.

The Sale Agreement provides that the Purchaser and the Vendor agree that the Agreement provides for the supply of a going concern within the meaning of the GST Act. In the event that the GST concession relating to the sale of a going concern does not apply the Purchaser shall pay to the Vendor an amount equal to the GST payable on the sale.

Included as a Schedule to the Sale Agreement is the Loan Agreement which provides:

•         The Vendor as the Lender agrees to provide to the Purchaser as the Borrower the financial accommodation equal to the Purchase Price.

•         The Borrower will re-pay to the Lender the Loan Balance in equal weekly instalments from Completion.

•         The Borrower must pay to the Lender the interest payments (if any).

•         The Assets of the Business is the Collateral for the Loan.

The sale of the business was completed a few months ago.

• The business was not closed for any period of time prior to completion.
• The Vendor carried on the business until it was handed over to the Purchaser at the completion of the sale.
• The Purchaser is registered for GST.
• As both parties agreed that the sale of the business is a going concern, the sale price did not include GST and no tax invoice was issued to the Purchaser.
• The deed of assignment of the Lease formed part of the Sale Agreement. The Lease was assigned to the Purchaser from the completion of the sale and the Purchaser paid the rent from that date. However, there had been delays, from the property managers side, in transferring the Lease to the Purchaser.

Relevant legislative provisions

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).

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