Edited version of private advice

Authorisation Number: 1051846435117

Date of advice: 3 June 2021

Ruling

Subject: GST and supply of going concern

Question

Is the sale by Entity A (as Seller) to Entity B (the Buyer) of its Assets and the Business under the Asset Sale Agreement (Agreement) a GST- free going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply by the Seller to the Buyer of the Assets and the Business under the Agreement is a GST-free going concern under section 38-325 of the GST Act.

In this case it is accepted that Seller supplies to the Buyer all the things necessary for the continued operation of the enterprise until the date of the supply notwithstanding that some items (the Excluded Assets) are not provided.

Relevantly, consistent with the view in paragraphs 83 to 86 of Goods and Services Tax Ruling, GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) we accept that in the absence of the Excluded Assets the enterprise can still be carried on. Further consistent with paragraph 100 to 102 of GSTR 2002/5, as the leases will be procured and supplied to the Buyer on the day of supply, we accept that the Supplier has supplied all of the things necessary for the continued operation of the enterprise.

As the remaining conditions in section 38-325 of the GST Act are also met, the supply of the Assets and the Business under the Agreement is GST-free.

Relevant facts and circumstances

Entity X (The Seller) was established prior to 1 July 20XX and carries on a business as a supplier of goods (Retail Business). This business carried on by the Seller involves the purchase of supplies from third parties and on selling these to its customers. The business is conducted from premises owned by the Seller.

A related but separate business (conducted via a separate legal entity) is carried on by an associated entity, (Entity Y), from a different premise/location.

The business carried on by the Seller and the business carried on by Entity X are being sold to Entity Z (the Buyer) under the Asset Sale Agreement (Agreement).

As part of the Sellers activities, it is involved in other business activities which are separate to its Retail Business. That is, the Retail Business is operated from its own business premises, has different management and staff, separate management accounts and independent bank accounts are maintained.

Assets relating to the businesses/other activities of the Seller, which are not part of the Retail Business are not included as part of the Agreement and will remain with the Seller.

The Seller is registered for GST and has been since 1 July 20XX.

The Agreement for the purchase of the Retail Business was executed between the Seller and the Buyer. The Agreement provides that the Sellers carry on the Business and own or use the Assets in the Business and that the Sellers have agreed to sell the Assets and the Business to the Buyer, and the Buyer has agreed to buy the Assets and the Business from the Sellers, on the terms of the Agreement.

Subject to the other terms of the Agreement, the Sellers agree to sell and the Buyer agrees to purchase all the Seller's rights, title and interests in Assets and the Business in return for the purchase price.

Effected through a joint stocktake by representatives of the Buyer and the Sellers, all acceptable inventories held at the business premises must be transferred to the Buyers on or before completion.

Prior to the completion date, the Sellers are obligated to ensure the business is conducted in accordance with normal practice.

The Buyer must offer to employ certain employees of the Sellers Retail Business when they are made aware of the sale and must employ those who accept their offer. In addition, it is a condition precedent to completion of the Agreement that certain key employees of the business accept an offer of employment with the Buyer.

The Seller and associated significant shareholders and directors will be subject to a restrictive 'non-compete' covenant on completion and will not solicit, approach or deal with customers or employees from the Buyer.

The parties to the Agreement acknowledge in the Agreement the supply constitutes a GST-free going concern, under which the Sellers are supplying the Buyer with everything necessary to the continued operation of the enterprise and the Seller will carry on the enterprise until the day of the supply.

Ownership interests in the land and buildings in which the Retail Business operates will not be transferred under the Agreement, however the Sellers agree to procure leases of the business premises to the Buyer. This is a condition precedent of the sale agreement.

The Buyer agrees to purchase the Assets of the Sellers which includes all Plant and Equipment except for excluded plant and equipment (Excluded Assests).

The Excluded Assets are actively used in the business; however, are not necessary for the continued operation of the Retail Business.

The Buyer is registered for GST

Relevant legislative provisions

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

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