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Edited version of your private ruling
Authorisation Number: 1012509544769
Ruling
Subject: GST and the supply of a going concern
Question 1
Will the supply of the business be 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)?
Answer
Yes. The supply of the business will be a GST-free supply of a going concern.
· You are registered for GST.
· You entered into a written agreement for the sale of business to the purchaser.
· The purchaser is registered for GST.
· The written agreement was entered into for the sale of the business as a going concern.
· The supply of the business was for monetary payment.
· You carried on the business up to the time of settlement.
· The purchaser will continue to carry on the business after that date.
· You will supply everything necessary for the continued operation of the business to the purchaser:
· Transfer of business name
· Website and facebook page
· New 3 year lease agreement signed with landlords and purchaser to enable use of existing premises
· All property, plant and studio equipment in good order transferred with the sale.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5.
A New Tax System (Goods and Services Tax) Act 1999 section 9-30.
A New Tax System (Goods and Services Tax) Act 1999 section 9-40.
A New Tax System (Goods and Services Tax) Act 1999 section 38-325.
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(1).
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(2).
A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-325(2)(a).
A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-325(2)(b).
Reasons for decision
Summary
The supply of the business will be 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).
Detailed reasoning
Section 9-40 of the GST Act provides that you are liable for GST on the taxable supplies that you make.
A supplier will make a taxable supply if all of the requirements of section 9-5 of the GST Act are met.
Under section 9-5 of the GST Act you make a taxable supply where:
· you make the supply for consideration; and
· the supply is made in the course or furtherance of your enterprise that you carry on; and
· the supply is connected with Australia; and
· 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.
In your case, you supplied your entire business operations to the purchaser. The supply will be made in the course or furtherance of your enterprise. The supply is connected with Australia as your enterprise operates in Australia and you are registered for GST. As such the requirements of section 9-5 of the GST will be met.
The supply will not be an input taxed supply because it does not fall under any of the provisions in Division 40 of the GST Act.
The issue to be addressed is whether the supply of your business is considered a GST-free supply.
Paragraph 9-30(1)(a) of the GST Act provides that a supply is GST-free, if it is GST-free under Division 38 of the GST Act, or under a provision of another Act.
Subdivision 38-J of the GST Act provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. As such, it is necessary to consider whether the supply will satisfy the requirements of section 38-325 of the GST Act.
A supply is 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.
A supply of a going concern
The 'supply of a going concern' is defined under subsection 38-325(2) of the GST Act
Subsection 38-325(2) of the GST Act provides that a supply of a going concern is a supply under an arrangement under which:
· the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and
· 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).
Paragraph 75, GSTR 2002/5 states that 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.
It is determined that you will supply all assets that are necessary for the continued operation of the enterprise including the lease agreement of the commercial premises; and all property, plant and studio equipment.
It is also determined that you will supply the operating structure and processes of the enterprise by the transfer of business name, website and Facebook page.
Accordingly, you will be supplying to the purchaser all of the things that are necessary for the continued operation of the enterprise. Further, you will continue to carry on the enterprise until the day of the supply.
Thus all the requirements of subsection 38-325(2) of the GST Act have been fully satisfied and the supply is a supply of a going concern.
A GST-free supply of a going concern
Subsection 38-325 of the GST Act provides that the supply of a going concern is GST-free if:
· the supply is for consideration; and
· 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.
In your case, the supply will be consideration. The purchaser is registered for GST. You and the purchaser have agreed in writing that the supply is of a going concern.
Therefore, the supply of the business will be a GST-free supply of a going concern under section 38-325 of the GST Act.