Edited version of your private ruling

Authorisation Number: 1012536486069

Ruling

Subject: GST and the supply of going concerns

Question 1

Will the supplies made by A to the Partnership pursuant to the Agreement be a GST-free supply of a 'going concern' within the context of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Will the supplies made by B to the Partnership pursuant to the Agreement be a GST-free supply of a 'going concern' within the context of section 38-325 of the GST Act?

Answer

Yes.

Question 3

Will the supplies made by C to the Partnership pursuant to the Agreement be a GST-free supply of a 'going concern' within the context of section 38-325 of the GST Act?

Answer

Yes.

Question 4

Will the supplies made by D to the Partnership pursuant to the Agreement be a GST-free supply of a 'going concern' within the context of section 38-325 of the GST Act?

Answer

Yes.

Question 5

Will the supplies made by E to the Partnership pursuant to the Agreement be a GST-free supply of a 'going concern' within the context of section 38- 325 of the GST Act?

Answer

Yes.

Relevant facts and circumstances

The including A, B, C, D and E (each a Party) (collectively the Parties) was selected through a tender process in construct and operate the asset. Each Party is registered for GST.

The asset is open and operating and will continue to remain open in the future.

B is the operator of the asset. B and A were granted the concession to operate the asset. A has entered into a sublease with B for the use of the asset and A receives rental income from B. B charges users of the assets. D collects the charges from the users on B's behalf.

B does not have any employees. The personnel required to conduct B's enterprise are employed by C, which operates as a service provider to B. In addition, D has employees in order to perform its obligations to B. B leases premises from a third party and has, or will prior to Completion, grant a license to D and C under which relevant employees can utilise the leased premises in performing their duties.

A has obligations to maintain and repair the asset. A entered into a lease with the landlord and subsequently entered into a sublease with B for the use of the asset. A receives rental income from B for the lease.

A does not have any employees. The personnel required to conduct A's enterprise are employed by C.

C's employees perform services for the entities in the Group in respect of their business operations.

D is a services company that performs the customer service and billing functions for the asset on behalf of B. D receives consideration from B calculated with reference to the costs associated with the services provided.

D also provides its services for another asset for the landlord.

The landlord has contracted with E for E to design and construct the works. E has ongoing obligations in relation to the construction and maintenance of certain assets relating to the asset pursuant to various Agreements in connection with the asset's operations that may be relevant in the event of a claim.

The Partnership will be acquiring the assets and undertakings of each of the above pursuant to the Agreement.

In the intended transaction the Parties' Assets will be sold pursuant to the Agreement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision

Summary

The supplies made by the Parties to the Partnership pursuant to the Agreement will be GST-free supplies of 'going concerns' within the context of section 38-325 of the GST Act?

Detailed reasoning

Taxable Supply

Under section 9-5, an entity makes a taxable supply if:

· it makes a supply for consideration; and

· the supply is in the course or furtherance of an enterprise that it carries on; and

· the supply is connected with Australia; and

· the entity is registered or required to be registered for GST.

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

The supplies made by the Parties will satisfy the positive limbs of section 9-5 and raises the issue of whether the supplies will be GST-free supplies of going concerns.

GST-free supply

A supply will be a GST-free supply of a going concern where the requirements of section 38-325 are met.

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 and when the 'supply of a going concern' is GST-free.

For a supply to be a GST-free supply of a going concern under section 38-325:

· the supply must be made 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 (paragraph 38-325(2)(a)); and

- the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise) until the day of the supply (paragraph 38-325(2)(b));

· the supply must be for consideration (paragraph 38-325 (1)(a));

· the recipient of the supply must be registered or required to be registered for GST (paragraph 38-325 (1)(b)); and

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

Subsection 38-325(2)

Supply under an arrangement

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) 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 enterprise being supplied by each of the Parties will occur by way of asset transfers under the Agreement and the novation of Agreements, Material Contracts and Business Contracts that relates to the various Parties' enterprises and all that this entails (see below).

In our view, the Agreement and novations constitute an arrangement that satisfies the requirements of subsection 38-325(2).

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

Paragraphs 38-325(a) and (b) require the conditions to be satisfied in relation to an 'identified enterprise'. The term 'enterprise' is defined in section 9-20 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, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property.

In essence, A, B, C, D and E operate enterprises that are associated with the asset. These enterprises are continuous and uninterrupted. Each is an 'identified enterprise'.

Where the enterprise is identified, a supplier needs to supply 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 (Paragraph 30 of GSTR 2002/5).

In this case the Parties supply to the Partnership the enterprises that are encapsulated in the assets, contracts and agreements they hold.

It is our view that all the things necessary for the continued operation of the various enterprises are supplied by the Parties under the arrangement.

Supplier carries on the enterprise until the day of the supply

Under paragraph 38-325(2)(b), 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, if applicable, 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 day of supply occurs when the Parties have done everything to satisfy their various obligations under the Agreement and the Partnership has assumed effective control and possession of the enterprises.

Given the inexorability of the Parties' core task of running and maintaining the asset and all this encompasses, it is our view that the Parties carry on their respective enterprises until the day of supply to the Partnership, that is the day of completion for the Agreement.

Subsection 38-325(1)

Supply for consideration

Paragraph 38-325(1)(a) requires that the supply is made for consideration.

The payment of consideration for the supplies is set out in the Agreement. We consider that the supplies made by the Parties are made for consideration.

Recipient registered for GST

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

As the Partnership represents and warrants that they it is registered or required to be registered for GST and will remain so until completion, we consider that this requirement is met.

Agreed in writing

Under paragraph 38-325(1)(c), 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 Agreement sets out the conditions that must be met for the sale of the various enterprises to be affected. The Agreement sets out the requirements related to the GST Act.

We consider that the Parties and the Partnership agree in writing that the supplies of the respective enterprises are the supplies of going concerns.

Taking all the above facts into consideration, we agree that the Parties' various supplies to the Partnership meet the requirements for GST-free supplies for the purposes of section 38-325 of the GST Act.