Edited version of private ruling

Authorisation Number: 1011723175623

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Ruling

Subject: GST and supply of a going concern

Question

Is the sale of business by you under the terms and conditions of the Sale and Purchase Agreement (the SPA), a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer: Yes.

The sale of business by you under the terms and conditions of the SPA is a GST-free supply of a going concern for the purposes of section 38-325 of the GST Act.

Relevant facts and circumstances

You are registered for the goods and services tax (GST).

You operate a retail business.

You have retail agreements with your customers.

You entered into a SPA with the purchaser for the sale of your retail business on the specified terms and conditions of the SPA. Under the SPA between you and the purchaser, you will be supplying all of the things that are necessary for the continued operation of the identified enterprise.

Under a clause of the SPA, you have agreed with the purchaser, that the sale of the retail business is for consideration and is the supply of a going concern that is GST-free. The parties have acknowledged that the purchaser is registered for GST, and will continue to be registered up to and including the day of the supply of the going concern.

Further, a clause in the SPA requires you to conduct the retail business in the ordinary course, substantially in the same manner as it was conducted prior to entering into the SPA. You must also conduct the retail business until the day of the supply.

Reasons for decision:

Section 38-325 of the GST Act provides 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 part of a larger enterprise carried on by the supplier).

(asterisks denote terms defined in section 195-1 of the GST Act)

A supply will be a GST-free supply of a going concern when all the requirements in section 38-325 of the GST Act are satisfied. A two-step approach is required to determine firstly, whether the supply is a going concern and if it is, then whether it is a GST-free supply of a going concern.

The 'supply of a going concern' is defined under subsection 38-325(2) of the GST Act under paragraphs (a) and (b) as stated above. A supply will be a 'supply of a going concern,' where the arrangement satisfies paragraphs 38-325(2)(a) and (b) of the GST Act and the relevant supply is made under that arrangement.

Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) discusses a 'supply of a going concern' for the purposes of section 38-325 of the GST Act and, when the 'supply of a going concern' is GST-free.

Based on the information provided in your request, you have been carrying on a business as stated in the facts. You are supplying this business to the purchaser. Further, you have retail agreements with your customers.

The 'identified enterprise' that you are supplying to the purchaser is the retail business. Therefore, the things that you will be supplying to the purchaser pursuant to the SPA must relate to this identified enterprise.

All the things that are necessary for the continued operation

A supplier is required to supply 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.

At paragraph 72 and 73, GSTR 2002/5 states:

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'.

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.

When making a supply of a going concern, it is not necessary for every element of the enterprise to be supplied to the purchaser. For example, certain things which are used in the enterprise as a matter of choice by the supplier conducting the enterprise are not necessary in circumstances where the enterprise could be carried on in the absence of those things.

Therefore, in order to determine whether you are making a supply of a going concern to the purchaser under the SPA, it is necessary to consider whether you supply all the things necessary for the continued operation of your identified enterprise.

At paragraph 75, GSTR 2002/5 states:

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.

The business, or operating structure and process of an enterprise is difficult to define and will always be a matter of fact and degree in a particular context.

Under the SPA between you and the purchaser, you are able to supply all of the things that are necessary for the continued operation of the identified enterprise.

Supplier carried on the enterprise until the day of the supply

Paragraph 38-325(2)(b) of the GST Act requires that 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).

As provided in paragraph 161 of GSTR 2002/5, the day of the supply occurs when the supplier has done everything to satisfy the obligations under the arrangement governing the supply and the recipient has assumed effective control and possession of all the things necessary for the continued operation of the enterprise. Further as stated in paragraph 141 of the GSTR 2002/5, the enterprise must be operating up to and until the day of the supply.

In accordance with the SPA you must conduct the retail business in the ordinary course and substantially in the same manner as it was conducted prior to entering into the SPA, until completion. This confirms that you will be required to carry on the retail business until the day of the supply.

Accordingly, we agree that the requirement of paragraph 38-325(2)(b) of the GST Act will be satisfied.

GST-free supply of a going concern

Subsection 38-325(1) of the GST Act states that the supply of a going concern is GST-free where:

· the supply is for consideration;

· the recipient is registered or required to be registered; and

· the supplier and the recipient have agreed in writing that the supply is of a going concern.

Whether the supply was for consideration

The first requirement of subsection 38-325(1) of the GST Act is that the 'supply is for consideration'.

As provided for under the SPA, the supply of your business to the purchaser is for consideration. Accordingly, the supply will satisfy the above requirement.

Whether the recipient was registered or required to be registered at all relevant times.

The second requirement of subsection 38-325(1) is that the 'recipient is registered or required to be registered'.

Paragraph 186 of GSTR 2002/5 provides that the requirement is satisfied if the purchaser is registered or required to be registered 'in respect of the enterprise on and from the date of the supply'.

Under a clause of the SPA, you confirm that the purchaser will continue to be registered for GST on the day of the supply and therefore, this requirement will be satisfied.

Whether you and the supplier agree in writing that the supply will be a supply of a going concern

Pursuant to a clause of the SPA, you and the purchaser have agreed that the supply of the business constitutes a supply of a going concern.

As such, we agree that third requirement of subsection 38-325(1) of the GST Act will be satisfied.

Conclusion

As per the above analysis, the supply of your business to the purchaser under the terms and conditions of the SPA meets all the requirements of section 38-325 of the GST Act. The supply is a supply of a going concern, which is GST-free under section 38-25 of the GST Act.