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Edited version of private ruling
Authorisation Number: 1011696215401
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Ruling
Subject: GST and supply of a going concern
Question
Is the sale of a business a GST-free sale of a going concern?
Answer
Yes, the sale of your business is a GST-free sale of a going concern.
Relevant facts and circumstances
You carry on a business. .
You propose to sell a specified part of the business.
You will continue to operate the other part of the business.
The sale of the business will be for consideration
You operate your business from home rather than separate business premises.
Most of your clients are obtained by word of mouth advertising.
You have entered into an agreement with the purchaser regarding the sale of part of the business.
The agreement contains a list of various items which will be provided to the recipient to assist in the operation of the business.
Included in the agreement is a restraint of trade restricting the sellers from carrying on a similar business.
All client records will be handed over to the purchaser on completion of the sale.
All licences, relating to the business will be transferred by the seller to the buyer on or before completion of the sale contract.
The seller will cease the activities of the specified part of the business once the sale of the business is concluded and the purchaser will operate that specified part of the business from that time on.
The agreement states that the sale is of a going concern.
The recipient is registered for GST.
Reasons for decision
Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (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.
(*denotes a term which is defined in section 195-1 of the GST Act)
A 'supply of a going concern' is defined under subsection 38-325(2) of the GST Act as 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 supply (whether or not as part of a larger enterprise carried on by the supplier)
Goods and Services Tax Ruling GSTR 2002/5 - Sale of a going concern (GSTR 2002/5) examines the requirements necessary for a sale of a going concern to be GST-free under section 38-325 of the GST Act.
Paragraphs 31 and 32 of GSTR 2002/5 consider as an example the situation where an enterprise, which is part of a larger enterprise, is sold by one entity to another entity. The ruling states that a sale such as this will be GST-free where the requirements of section 38-325 of the GST Act are satisfied. It is also necessary that the enterprise which is sold be an enterprise as defined in section 9-20 of the GST Act.
In your case you have been carrying on two types of enterprise. You claim that each of these activities is capable of being carried on as a business in its own right. GSTR 2002/5 indicates that part of an enterprise can be suppled as a going concern where the requirements of section 38-325 of the GST Act are met.
The sale of part of the business satisfies the definition of a 'supply of a going concern' in that you claim that all things necessary for the continued operation of that enterprise have been provided to the recipient.
The part of the business was operated by you from your home and not from business premises. The recipient will operate the business from his home as well. It is therefore not necessary for premises to be provided by you.
The requirements of subsection 38-325(1) of the GST Act have been satisfied because:
The specified part of the business is supplied for consideration.
You and the recipient are registered for GST.
Both you and the recipient have agreed that the sale of the specified part of the business is the sale of a going concern for GST purposes.
The sale of the specified part of the business is therefore a GST-free supply.