Edited version of private ruling

Authorisation Number: 1011799326081

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and acquisition of a going concern

Questions at issue:

1. Will an acquisition by an entity (Purchaser) of the assets from another entity (Vendor) be an acquisition of a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Will this ruling apply to all similar transactions involving other entities that the Purchaser intends to undertake?

Relevant Facts

An entity is proposing to acquire the assets of another entity.

The entities involved will enter into an Acquisition Agreement to document the terms and conditions of the acquisition.

The Acquisition Agreement provides for, among other things, the following:

· lease of the premises from which the business is to be carried on,

· employment for existing employees,

· the consideration for the acquisition,

· an agreement in writing by the Vendor and the Purchaser that the sale of the assets constitutes the supply of a going concern for the purposes of the GST Act and

· that the Vendor will carry on its enterprise in the usual and ordinary course until completion of the Acquisition Agreement.

Decision

1. Yes, the acquisition of the assets of the Vendor by the Purchaser is an acquisition of a GST-free supply of a going concern under section 38-325 of the GST Act.

2. No, this ruling is based on the facts stated in the description of the scheme or circumstances as set out above.

Reasons for decision

1. Will an acquisition by an entity (Purchaser) of the assets from another entity (Vendor) be an acquisition of a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

GST is payable on taxable supplies. Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with Australia; and

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

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

(The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act).

The supply of the assets by the Vendor will satisfy the positive limbs of section 9-5 of the GST Act. Therefore, the supply will be taxable to the extent that it is not GST-free or input taxed. The provisions of the GST Act that are relevant in determining the nature of the supply, in this case, are the GST-free going concern provisions which are considered below.

GST-free supply of a going concern

Subdivision 38-J of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement that satisfies section 38-325 of the GST Act.

Section 38-325 of the GST Act states:

(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).

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 a supply of a going concern for the purposes of section 38-325 of the GST Act.

Supply for consideration

Paragraph 38-325(1)(a) of the GST Act requires that the supply is made for consideration. This element is satisfied by the provisions of the Acquisition Agreement.

Recipient registered for GST

Paragraph 38-325(1)(b) of the GST Act requires that the recipient is registered or required to be registered for GST.

Both the Purchaser and the Vendor are registered for GST.

Agreed in writing

Under paragraph 38-325(1)(c) of the GST Act, the supplier and the recipient must have agreed in writing that the supply is of a going concern.

The term agreed in writing means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply is a supply of a going concern (refer paragraph 181 of GSTR 2002/5).

The Acquisition Agreement requires that the Purchaser and Vendor agree that the supply is of a going concern. Accordingly, paragraph 38-325(1)(c) of the GST Act is satisfied.

Supply under an arrangement

Under subsection 38-325(2) of the GST Act, the term supply under an arrangement includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under paragraph 38-325(1)(c) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply.

However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made (refer to paragraphs 19 and 20 of GSTR 2002/5).

The Acquisition Agreement stipulates the arrangement under which the supply of assets is to be made. This will constitute an arrangement that satisfies the requirements of subsection 38-325(2) of the GST Act.

Supplier supplies all things necessary for the continued operation of an enterprise

Paragraphs 38-325(2)(a) and (b) of the GST Act require the conditions to be satisfied in relation to an identified enterprise. The term enterprise is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade.

Paragraph 29 of GSTR 2002/5 requires the identification of an enterprise that is being carried on by the supplier.

A supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses (refer to paragraph 74 of Goods and Services Tax Ruling GSTR 2002/5).

Paragraph 75 of GSTR 2002/5 provides that there are two elements that are necessary for the continued operation of an enterprise:

• the assets necessary for the continued operation of the enterprise, and

• the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted.

The Acquisition Agreement outlines the relevant assets to be disposed by the Vendor to the Purchaser. The terms of the Acquisition Agreement requires that all the things necessary for the continued operation of the enterprise will be supplied to the Purchaser by the Vendor on the date of completion of the contract.

Supplier carries on the enterprise until the day of the supply

Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be 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 (refer to paragraph 141 of GSTR 2002/5).

The day of supply is determined in each case by reference to the terms of the particular contract and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier (refer to paragraph 161 of GSTR 2002/5).

The Acquisition Agreement requires for the Vendor to carry on its enterprise in their usual and ordinary course until completion of the Acquisition Agreement. Therefore, the requirements of section 38-325 of the GST Act will be met at the time of completion of the sale. Accordingly, the Vendor will be making a GST-free supply of a going concern and no GST will be payable on the sale.

2. Will this ruling apply to all similar transactions involving other entities that the Purchaser intends to undertake?

The Commissioner as a matter of principle does not make such decisions. This ruling is based on the facts stated in the description of the scheme or circumstances under the heading "relevant facts". If the circumstances are materially different from these facts, this ruling has no effect. If there are other similar circumstances that require the Commissioner's view, we request that a new ruling request is submitted.