Edited version of private advice

Authorisation Number: 1052064801434

Date of advice: 5 December 2022

Ruling

Subject: Sale of going concern

Question

Is the sale of the Childcare Centre business and building a sale of going concern?

Answer

No, the sale of the childcare centre business and building will not be a sale of going concern under Section 38-325 of the GST Act.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

31 October 20XX

Relevant facts and circumstances

XXX (You), is registered with ABN XXX and are registered for GST from XXX.

You operate a main enterprise of education and training.

You operate a XX and a XX.

Previously you operated a Childcare Centre enterprise (CCE) named "XXX" at XXX.

This CCE was ended around 20^th December 20XX.

You surrendered the Service Approval licence for the CCE in error around XXX, but within XX weeks of cancellation, had reapplied for this licence, which was subsequently approved XXX.

The Childcare Centre is ready to operate and meets the required Department of Education standards.

Since having the licence re-approved a staff member has fielded calls for enrolments for XXX.

Based on information received by email XXX, the childcare centre will not be active with any enrolments until after XXX.

You will not have confirmed child numbers for the Centre until 20XX.

The staff member fielding calls in relation to the Centre will also not leave your services to go with the business when it is sold.

You were approached by a willing buyer of the Childcare Centre and business, including furniture, toys and equipment and all things needed to operate for $XXX.

Vendor and purchaser both will agree sale is a going concern in writing.

The purchaser is registered for GST.

Relevant legislative provisions

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

Reasons for decision

Section 9-5 of the GST Act provides you make a taxable supply if:

(a)         you make the supply for consideration.

(b)         the supply is made in the course or furtherance of an enterprise that you carry on

(c)         the supply is connected with the indirect tax zone; and

(d)         you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The sale of the Childcare Centre and Property meets all the requirements of section 9-5 of the GST Act and as it is commercial premises the supply is not an input taxed supply. Therefore, it needs to be determined whether the sale of the Property is a supply that is GST-free.

Subdivision 38J of the GST Act deals with supplies of going concerns. Subsection 38-325(2) defines what is a supply of a going concern and provides that it 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) he supplier carries on, or will carry on, the *enterprise until the day of the supply (where or not as a part of a larger enterprise carried on by the supplier).

Further, subsection 38-325(1) of the GST Act provides that 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

(* denotes a term defined in section 195-1 of the GST Act)

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) explains what a 'supply of a going concern' is and when this supply is GST-free for the purposes of Subdivision 38J of the GST Act.

The supplier carries on the enterprise until the day of the supply

Paragraph 141 of GSTR 2002/5 states:

141. The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

In this case there is not an on-going enterprise being carried on, nor will it commence or be carried on until the day of supply. This is because since shutting down on XXX, the Childcare Centre was not operational and only sought new applications for placements from children after XXX when re-activation of your licence was granted. Due to these facts and knowing no children nor educators will be active until after XXX, we do not consider the Childcare Centre enterprise is operational in any capacity and therefore the supply will not be a sale of going concern.

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