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Edited version of your private ruling
Authorisation Number: 1012541428066
Ruling
Subject: Acquisition of a GST-free going concern
Question
Is the acquisition of the assets and tenements of the joint venture Interests in respect of a mine, as governed by the sale and purchase agreement (the Contract), a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No; because the acquisition was a GST-free supply of a going concern, the requirements of section 11-5 of the GST Act are not satisfied.
Relevant facts and circumstances
You, the buyer, have purchased assets and tenements of a mining operation and are registered for goods and services tax (GST).
The sellers operate mines and undertake associated activities in various locations.
The sellers have made a decision to sell the operating mine located in Australia.
The mining operation is made up of a mine and joint venture interests.
The sellers do not operate as a grouped GST joint venture with a joint venture operator.
The mining operation is defined to include the rights, title, interests and assets of the sellers used exclusively in the operations other than excluded assets.
The excluded Assets include assets of the sellers that are unconnected with the enterprise that is being sold and are not generally necessary for the continued operation of the mining operation.
All transferring contracts that relate exclusively to the operations will be transferred to you pursuant to the contract.
Where excluded contracts are necessary for the continued operation of the enterprise being supplied, the seller will facilitate the entry into a new agreement between you and the third party supplier pursuant to the contract.
You will assume liabilities relating to the assets and employees, which includes employee entitlements, trade payables, contractual liabilities, environmental bonds and rehabilitation liabilities.
The consideration for the sale of the assets is the payment of the purchase price and the assumption of the assumed liabilities.
The acquisition was a GST-free supply of a going concern under section 38-325 of the GST Act.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 7-1
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-10
A New Tax System (Goods and Services Tax) Act 1999 section 11-15
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Reasons for decision
The basic rules
Section 7-1 of the GST Act provides that entitlements to input tax credits arise on *creditable acquisitions. Under section 11-20 of the GST Act you are entitled to claim input tax credits for any creditable acquisition that you make.
Section 11-5 of the GST Act defines a creditable acquisition by stating:
11-5 What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
(*Asterisked terms are defined in the Dictionary under section 195-1 of the GST Act)
In order to make a creditable acquisition all of the requirements of section 11-5 of the GST Act must be satisfied.
Goods and Services Tax Ruling GSTR 2008/1 GST: when do you acquire anything or import goods solely or partly for a creditable purpose? (GSTR 2008/1) explains some factors that provide guidance in determining whether an acquisition is for a creditable purpose.
Acquisition
Section 11-10 of the GST Act gives the meaning of acquisition and provides that an acquisition is any form of acquisition whatsoever and includes an acquisition of goods and services, a receipt of advice or information, acceptance of a grant, assignment or surrender of *real property, or an acceptance of a grant, transfer, assignment or surrender of any right.
The acquisition of the assets and acceptance of the obligations under the contract is an acquisition for purposes of the GST Act.
Acquisition for a creditable purpose
Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.
You are acquiring the assets and obligations which will be used in carrying out your enterprise of mining. Accordingly you satisfy subsection 11-5(a).
The supply to you is a taxable supply
Section 9-5 provides that a supply is not a taxable supply to the extent that it is GST-free. Because the supply to you was a GST-free supply of a going concern under section 38-325 of the GST Act, the acquisition was not a taxable supply.
Subsection 11-5(b) is not satisfied.
Because subsection 11-5(b) is not satisfied you have not acquired a creditable acquisition. Accordingly you are not entitled to claim input tax credits under section 11-20 of the GST Act.