Edited version of private ruling

Authorisation Number: 1011713251903

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Ruling

Subject: GST and sale of a going concern

Question 1

Is XYZ making 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) when it sells its car washing and detailing business (the Business) to JKL (the Buyer)?

Answer: Yes, XYZ is making a GST-free supply of a going concern under section 38-325 of the GST Act when it sells its Business to the Buyer.

XYZ entered into a business sale contract (the contract) with the Buyer to sell the Business to the Buyer.

The contract stipulated that the sale was concluded as a "walk-in, walk-out" basis.

The term 'Business' is defined in the contract and includes 'Business Assets'.

The purchase price of the Business is stipulated in the contract.

XYZ and the Buyer intended to have the Business sold as a going concern for GST purposes.

The contract stipulates that the sale of the Business is a sale of a going concern.

XYZ carries on the Business until the day the Business is sold which is at settlement.

As advised, the Buyer is registered or required to be registered for GST.

Under the sale of the Business, XYZ transfers all assets to the Buyer except for its business trading name (which is also the same as its company name).

The contract provides that XYZ agrees that it will consent to allow the Buyer to register a business name approved by the Department of Fair Trading or ASIC bearing a name of the Buyer's choosing which will enable the Buyer to use a name which in the opinion of the Buyer will preserve the goodwill associated with the business conducted from its current location.

The equipment included in the sale of the Business are listed in the contract.

Reasons for decision

Subdivision 38-J is about supplies of going concerns.

Section 38-325 states that:

(1) The *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.

(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).

Subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which XYZ must supply all of the things necessary for its continued operation and XYZ must carry on until the day of the supply.

In this case, it is not contested that the identified enterprise is that of the car washing and detailing business and that the sale of the Business by XYZ is a supply under an arrangement.

All of the things that are necessary for the continued operation of an enterprise

When determining whether a supply is a supply of a going concern it is critical to establish whether the supplier supplies all of the things that are necessary for the continued operation of an enterprise.

Paragraphs 72 to 89 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) discusses the meaning of 'all of the things that are necessary for the continued operation of an enterprise' and relevantly states at paragraph 72 to 75 that:

72. The term 'necessary' incorporates every attribute of an enterprise that is essential for the continued operation of the 'identified enterprise'. The things that are 'necessary' will depend on the nature of the enterprise carried on and the core attributes of that enterprise. The term 'all of the things that are necessary' does not refer to every conceivable thing which might be used in the 'identified enterprise'. Access to environmental factors, for example, access to public roads, public telephone systems and postal services, are not ordinarily things which must be supplied by the supplier.

73. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing. For example, a boat may be essential to the conduct of the businesses of a professional fisherman, a water-ski instructor, a deep-sea diving instructor or a repairer of underwater structures because, in most instances, the relevant business could not be conducted at all without a boat. The supplier must supply the boat for the continued operation of the enterprise.

74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.

75. Two elements are essential for the continued operation of an enterprise:

· the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

· the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

In this case, all the assets to the Business are transferred to the Buyer except for the business trading name.

The contract provides that the Buyer is permitted to register a business name of the Buyer's choosing which, in the opinion of the Buyer, will preserve the goodwill associated with the business conducted from its current location.

In the current circumstances, we consider that the trading name of the Business is not one of the things that are necessary for the continued operation of the identified car wash and detailing enterprise as that enterprise can still continue to operate under a different trading name of the Buyer's choosing which will preserve the goodwill associated with the Business. Therefore, we are of the opinion that XYZ has supplied to the Buyer all of the things that are necessary for the continued operation of the carwash and detailing enterprise.

As XYZ will carry on the Business until the day of settlement and that the sale of the Business is a supply under an arrangement, the sale will be a supply of a going concern for the purposes of subsection 38-325(2).

Accordingly, XYZ is making a GST-free supply of a going concern under section 38-325 when it sells its Business to the Buyer as the sale of the Business is for consideration, the Buyer is registered or required to be registered for GST and that XYZ and the Buyer have agreed under the contract that the sale of the Business is of a going concern.