Edited version of your written advice

Authorisation Number: 1012689464604

Ruling

Subject: Whether the goodwill of a Partnership will retain its pre-CGT status

Question 1

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) where the Partnership continues to carry on its business as a supplier and distributor of products to the wholesale market?

Answer

Yes

Question 2

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership expands its customer base, to the Australian retail market?

Answer

Yes

Question 3

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership expands its customer base to the international markets?

Answer

Yes

Question 4

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership acquires one or more of its suppliers which provides inputs to its products?

Answer

Yes

Question 5

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership ceases to outsource some or all delivery of its products and expand the capabilities of its own fleet or delivery vehicles?

Answer

Yes

This ruling applies for the following period(s)

01/07/2013 to 30/06/2018

The scheme commences on

The scheme has commenced

Relevant facts and circumstances

Establishment of the Partnership

In 19XX, Mr and Mrs X formed the Partnership and through it acquired a business that carried on the business of a delicatessen as well as selling and distributing retail and wholesale cooked and uncooked products. Since its establishment in 19XX to the current day, the Partnership has remained owned equally by Mr and Mrs X.

Since 19XX the Partnership has used and continues to use the trade name of ABCD, its trade mark and logos.

In 19XX, the business, supplied and distributed the following cooked and raw food products (including but not limited to);

(i) Raw and whole chicken and pieces

(ii) Other poultry products (such as turkey)

(iii) Cooked and uncooked meat products (including but not limited to cold cooked pork and beef);

(iv) Smallgoods including cured meats such as smoked ham and bacon);

(v) Sandwiches using raw and cooked products (i.e. poultry bi-products and meat bi-products);

(vi) Raw vegetables (such as avocados and eggplant) and cooked vegetable products (such as eggplant dips and antipasto); and

(vii) A variety of cold salads and groceries (such as bread and eggs)

in part to the retail and in part to the wholesale market. The Partnership distributed its products to customers when requested, through the use of a motor vehicle.

(The foregoing activities are collectively referred to as "the Business")

The Partnership (trading as ABCD) conducted the Business at a rented premises in an Australian State ("Premises A).

Whilst the sources of income varied at times for the Partnership, it derived most of its income from the supply and distribution of cooked products and bi-products such as sandwiches (as detailed above) to the wholesale and retail markets.

In 19XY, Mrs A's parent (working and running a successful business in the poultry processing industry) suggested to Mr and Mrs X that as part of the Business' long term growth strategy, Mr and Mrs X should consider increasing the Business' range of raw products (and meat if necessary) and the volume of its products for sale to their existing wholesale and retail customers, as well as new customers.

In 19XZ, the Partnership implemented the suggestions of Mrs A's parent. As a result, the Partnership increased the range and volume of the Business' products.

The new product range included raw products, processed products and uncooked products. The Business supplied, distributed and sold these products to its retail and wholesale customers from Premises A. The Partnership continued to sell and distribute its products from Premises A to its wholesale and retail customers.

Customers of the Partnership included retail shops, hotels, bars and restaurants throughout the metropolitan and regional areas of an Australian State.

The Partnership implemented their expansion by:

(i) purchasing greater Business stock of products;

(ii) purchasing heavy-duty cutting knives for the processing and deboning products;

(iii) purchasing cooling and refrigeration equipment for the storing of the raw products; and

(iv) purchasing a motor vehicle solely for the delivery of its products to customers in the metropolitan and regional areas of the Australian state as well as continuing to use another motor vehicle which was partly used for private purposes.

By 30 June 19YY the Business had grown substantially. The Partnership's main source of income was from selling and distributing raw products from Premises A to its wholesale and retail customers.

Nonetheless, the Partnership continued to derive income from the supply and distribution of its raw products, processed products, uncooked products, other products (e.g., turkey used in sandwiches), smallgoods (Including sausages, patties, smoked ham and bacon), and other foodstuffs including sandwiches, vegetables, salads and groceries from Premises A.

As a result of the Business' growth, it became apparent to Mr and Mrs X that the Business required new premises to meet the demands of their continuing and new customers in order to facilitate its continued success and growth, as well as significantly improving their efficiencies and capabilities.

Accordingly in 19YZ, the Partnership relocated the Business from its Premises A to other premises at in the metropolitan area (which was a short distance away (approximately 10 kilometres from Premises A)) (Premises B).

Premises B were much larger than Premises A. Premises B provided the Business with additional processing, cooking and refrigeration space needed to accommodate the growing demands of its customers and to facilitate and consolidate its long-term future growth.

(i) From Premises B, the Partnership continued and continues to:

(ii) carry on the Business by supplying and distributing products to wholesale customers and retail customers through its factory shop sales;

(iii) carry on the activities which it carried on in the Premises A, such as boning, handling, marinating, processing, packaging and delivering its products;

(iv) sell and supply to its continuing and new customers in an Australian state and across Australia;

(v) develop and enhance its Business by the utilisation of modern and improved technologies such as more efficient cooking techniques, delivery systems and the utilisation of state-of-the-art chilling and freezing technologies. The Partnership through its retained consultants and staff is focused on developing its recipes and cooking techniques and satisfying the needs of both existing and potential customers;

(vi) explore methods to enhance and prolong all products' shelf life;

(vii) develop recipes and cooking / smoking methodologies such as proper utilisation of equipment and appropriate cooking temperatures and times required for the products; and

(viii) create recipes in response to customer requests and potential requests and needs of the market place.

The Partnership continually focused on the most up-to-date freezing and refrigeration technologies both during pre-production and post-production storage and product delivery.

Since 19XZ, the Business has enjoyed continued success and substantial growth. The Business is known today to be one of Australia's largest suppliers and distributors of cooked and uncooked products; the Business' products include an extensive range of poultry, meat, smallgoods and foodstuff products.

The Business operates across all States in Australia. It recently commenced to explore viability of export sales upon receiving AQIS certification.

As at 2014, the Business' key sales channels for their wholesale and retail products (cooked and uncooked) are hospitals, nursing homes, jails, mining sites, airport caterers, clubs, pubs, hotels, casinos and quick service restaurants.

Further, whilst the Business' main customers are from the wholesale market, each of the Business' premises continues to facilitate retail sales through its factory shop sales.

Goodwill of the Partnership

A number of key features contribute to the overall goodwill of the Business;

A. Head office and places of operation

Since the establishment of the Partnership in 19XX it has continued to operate and manage the Business from the metropolitan area, of the Australian state.

From 19XX to 19YY, the Partnership operated the Business from its head office at its Premises A, which was located In the metropolitan area.

In 19YZ, the Partnership relocated the Business' head office to Premises B (approximately 10 kilometres away from the Premises A) which was also located in the metropolitan area. Subsequently additional premises were acquired by interests associated with Mr and Mrs X and these premises together with Premises B are collectively known and referred to as the Premises C.

As noted in the foregoing, the Partnership continued to carry on the Business that was carried on at the Premises A and Premises B and subsequently at Premises C of which Premises B form a part.

Due to its central location in the particular region, Premises C provides the Business with easy access to major arterial roads and to the Airport, streamlining the efficiency of its delivery routes.

Since 19YZ, Premises C have grown with the Business. Over the last 30 years the Business' related entities have acquired and/or redeveloped adjoining properties for the Business' use.

(ix) Acquisition of the properties that comprise Premises C were necessary for the Business' purpose, by allowing it to (but not limited to):

(x) expand its capabilities and efficiencies;

(xi) improve its response to its existing and growing new national customer base;

(xii) provide a greater range of higher quality products both raw and cooked;

(xiii) efficiently deliver its products to national customers with prolonged shelf life; and

(xiv) build efficient and approved technologies, methodologies, equipment and facilities such as cold storage both chilling and freezing facilities, boning facilities and a cookhouse for the Business to exponentially increase its volume of processing, supplying, distributing and selling its raw and cooked products.

This contemporaneously coincided with the Business adapting to the continuously changing Australian and international food standards and requirements.

Food standards vary between states and also between national and international regulatory authorities. Additionally the Partnership adapted and continues to adapt its production in response to the changing requirements from existing and new customers desiring halal and kosher products.

Securing the tenure of all of the properties of which Premises C is comprised has allowed the Business to comply with these prescriptive food standards and requirements.

Since 20XX, the Partnership has been growing nationally with offices and/or facilities opening in a number of states.

One of the key factors which required the Partnership to expand to other States of Australia was that many of the Business' customers operated nationally, and requested and required the Partnership to provide its high quality foodstuff products to their places of operation outside of the Australian state and to more remote locations such as mines and military stations which required high quality, long shelf-life products.

While the Business has operations and facilities in every state of Australia, all customers including non-national customers of satellite facilities are managed and serviced from Premises C which remain the heart of the Business and reflects the Business' heritage.

Some of the other national customers continue to require delivery of products directly from the Premises C to those customers' operations outside of the Australian state.

Despite the expansion of the new facilities in other states of Australia in relation to boning, packaging, handling, sorting and distribution, the Premises C remain the Business' largest processing and storage facility, and houses the Business' only cookhouse (which was custom-built to meet the Business' specific needs).

All cooked-chilled products are produced in Premises C and distributed to other states of Australia and internationally according to demand.

The Business' administration offices are still located at Premises C, responsible for the financial and administration requirements of the Business nationally and internationally.

At Premises C, the Business:

(i) conducts all administration and oversees all the Business' operations including central order processing, financial control and regulatory and statutory compliance;

(ii) conducts all supply, processing and distribution of its products to its continuing and new customers in the Australian state, as well as partly supplying, processing and distributing across Australia and internationally;

(iii) develops and enhances its Business by retaining consultants and delivery staff, utilising and improving its technologies and recipes, for example in relation to far more efficient production with new cooking, chilling and freezing technologies;

(iv) explores all methods of enhancing all products' shelf life;

(v) develops all recipes and cooking/smoking methodologies such as proper utilisation of equipment and appropriate cooking time and temperatures required for the products:

(vi) creates recipes in response to customer and potential customer requests and needs;

(vii) boning raw whole pieces;

(viii) packaging of cooked and raw products for the wholesale and retail markets;

(ix) creating sauces and other products;

(x) smoking goods in a certain way/recipe; and

(xi) formulating recipes in response to customers' requests and market needs.

B. Business ownership

In 20YY, the Partnership was converted from a general law partnership to a limited liability partnership for commercial reasons. Mr and Mrs X continue to own, directly and indirectly, 100% of interests In the Partnership. In particular, Mr and Mrs X directly own 99% of the Partnership, having transferred 1% of their total interests in the Partnership's assets to ABCD Australia Pty Ltd., which is wholly owned by Mr and Mrs X.

In converting the Partnership into a limited liability partnership, Mr and Mrs X and their wholly owned company, ABCD Australia Pty Ltd obtained roll-over relief provided under Subdivision 122-B of the Income Tax Assessment Act 1997 for capital gains tax purposes.

Since the commencement of the Business in 19XX, the Partnership has not sold any part of its business to a third party and has not acquired any business of a third party.

C. Financial affairs

The Partnership prepares one set of financial statements in respect of the Business, from the Premises C.

The Business employs a full time financial controller who oversees a small team and is responsible for ensuring the integrity of financial information across all of the Business' business units and the timely production of a variety of management reports, including the following:

(i) Yield reports - produced daily and capturing the production of raw products;

(ii) Weekly performance reports - capturing the key business metrics including quantity and value of sales for each major product categories;

(iii) Monthly performance reports - similar to weekly performance reports but produced monthly; and

(iv) Item by category - produced monthly to provide detailed information on sales of all products.

When the Business commenced, the preparation of financial information was initially performed by Mr and Mrs X with Mr D assisting them. Mr D continues to assist the Business with its preparation of financial information.

D. Bankers

Since the Business inception, the Partnership has relied predominantly on internally generated funds, without funding from any external equity investors to pursue growth opportunities.

Since 19XX, the Partnership has only held its bank account in the two (2) following banks.

(i) 19XX to 19ZZ - Bank no. 1

(ii) 19ZZ to present - Bank no. 2

E. Management

Mr and Mrs X continue to have an ongoing contribution to the Business and are seen as the "heads" of the Business. They also continue to oversee and supervise the operations of the Business.

As such, Mr and Mrs X are an integral part of the Business in every aspect. Their children have been actively involved in the Business from an early age and contributed to duties including answering telephone calls, preparing products, and delivering products when the Business was in its early stages.

Currently, Mr and Mrs X's child has responsibilities in managing some aspects of the Business, including accounts and sales.

Mr and Mrs X' child is the Business'. The family still spends a substantial amount of time at Premises C assisting and advising various aspects of the Business.

F. Employees

The Business group currently employs over X employees, having increased from a few employees (including Mr and Mrs X) when the Business commenced in 19XX.

Other than Mr and Mrs X' family, E has worked in the Business since 19XX. E started as a casual part-time employee after school, assisting with sales and office work. After E left school, they started working on a permanent full-time basis and their duties involved sales and management of the office and administration E currently works as the Business' Manager.

Mr E (E's spouse) is the Business' current manager and has been involved in the Business for over Y years.

G. The ABCD Ethos

The Business is respected and leading Australian supplier of high quality products.

The overall ethos of the Business is the provision of excellent quality products to customers through a personalised arid superior service.

Although the Business' products are more expensive than that of its competitors, it is the Business' commitment to excellence in its products and services since commencement that has allowed the Business to evolve to its current size and reputation.

The Business' ethos remains unchanged since the Business commenced in 19XX and continues to be the philosophy which underpins the Business, its operations, and its success.

H. Food safety

Food safety is important for the Business, given its ethos and its customers' attraction to its high quality products.

The Business follows a program of continuous improvement of the quality of its products. This commitment includes active implementation of all food safety accreditation requirements ISO 9001 systems.

The Business is accredited by major airline catering companies, 4 and 5 star hotel groups, major hospitals, aged care suppliers, quick service restaurant franchises, state government, major football clubs and other major catering organisations on a national level.

I. Products and sales

Whilst the Business' range of products, have varied over the last X years to adapt to its customers' demands, the Business has continued to supply and products since 19XX.

In early 19YY, the Business supplied and distributed a range of raw products, cooked products, uncooked products, smallgoods and foodstuff products including sandwiches, salads, bread and eggs.

Over time, the Business operations in supplying and distributing its products grew exponentially, as the Business' products were attractive to wholesale customers, whilst its retail operations remained stagnant.

Currently, the Business supplies and distributes an extensive range of raw products, cooked products, uncooked products, smallgoods and foodstuff products to its customers.

The Business' most popular products continue to be its raw products.

The Business' products include the following:

(i) Raw / Uncooked products

(ii) Cooked products

(iii) Smallgoods

(iv) Foodstuff products:

The Business supplies and distributes its products from each of its premises to customers in the wholesale market, and to customers in the retail market through factory shop sales conducted on each of its premises.

J. Production techniques

Since the Business commenced in 19XX, it has relied on primary producers or middle markets for its products. The Business relies on its suppliers for inputs and uses its resources to process these inputs into products.

The production techniques carried out by the Business in 19XX continue to be practiced by the Business today.

In particular, since the Business commenced in 19XX, it has relied on its plant and equipment (including freezers and cool rooms), tools (such as heavy duty knives and cooking tools), the hard work and expertise of its workers (including initially Mr and Mrs X) to store, bone, cook, marinate, handle, package and process these inputs into its products, which are then either sold to the retail market or distributed to customers in the wholesale market through the use of the Business' motor vehicles.

These core activities were undertaken in the Business In 19XX at Premises A and were continued by the Business when relocated to Premises B. These core activities continue to be undertaken by the Business at Premises C today.

Some of these core activities are also carried out in the Business' other processing facilities across Australia.

For example, the Business continues to prepare its product pieces by hand at Premises C as it had done at the Premises A. The Partnership considers that the preparation of its product pieces by hand ensures that the products retain a high quality and enhanced yield.

Nonetheless, the Business has had to vary its production techniques over the last X years as a result of the competitive nature of its industry, technological advances, statutory and regulatory requirements and the growing demands of its customers.

Variation to the Business' production techniques over the last X years has been development and enhancement of its automated processes, and a gradual evolution and improvement of its production processes which are consistent with industry trends and reflects state-of-the-art technological advancements in the industry.

These include the following:

(i) In 19XX to 19XZ, the Partnership used a freezer and a cool room to store supplies from its suppliers and its products;

(ii) In 19YY, the Business purchased heavy-duty cutting knives to assist in the processing and deboning of products, which were previously undertaken by smaller knives;

(iii)In 19YY, the Business realised that there was a need to replace/upgrade its original freezer and cool rooms at its Premises A to accommodate its continued success and growth;

(iv) In 20XX, the Partnership added new processing equipment and production facilities (such as additional cooling and refrigeration equipment) to its Premises C to improve productivity and efficiency;

(y) In 20ZZ, the Partnership added a new commercial cooking kitchen to Premises C to serve the growing needs of its customers; and

(vi) Between 200X to 20XY, the Partnership added new commercial cooking equipment, kitchen facilities with state-of-the-art cooking, refrigeration and freezing with fixed weight sorting lines and tester product pack production lines to improve productivity and efficiency of its production techniques.

K. Suppliers

Given the nature of the industry and that the Business is not a primary producer, a crucial factor to the creation of the Business' high quality products is a consistent provision of high quality supplies which it sources from reliable suppliers.

The Business' inputs include a range of products, relevant cooking ingredients, formulae and packaging.

In this regard, the Partnership has long-standing and strong relationships with its suppliers which have grown with the Business in the last X years.

It is the opinion of Mr and Mrs X that the understanding and compatibility Business' key long-standing suppliers have contributed significantly to the Business' success as the guarantee of high quality supplies is one of the most important parts of the Business that has contributed to its immense organic growth and continued success.

The Business long-standing suppliers include:

(i) Supplier A, which has supplied the Business since the Business commenced in 19XX. Currently, Supplier A remains as one of the Business' key suppliers, having supplied X% of the Business' inputs in the year ended 30 June 20XZ; and

(ii) Supplier B, which is one of the Business' key suppliers. It has supplied the Business since 19ZX and, during the year ended 30 June 20XZ, supplied Y% of the Business' inputs. The Business also relies on several other suppliers. This is necessary because the Business has a policy of using at least two suppliers per key input location to ensure that supply chain risks, un-competitive price increases, and lack of supply are minimised.

L. Distribution Arrangements

When the Business commenced in 19XX, it used a motor vehicle (a van) to transport supplies and to distribute its products to its customers. This motor vehicle was used predominantly for the Business, although it was also used for some private purposes.

During the income year ended 30 June 19YY, the Business purchased a motor vehicle (a van) solely for the use of the Business. The motor vehicle was branded with the words ABCD' and the telephone number of the Business. It was used to distribute the Business' products to its customers.

As the Business experienced substantial growth during the 19ZYs into the 1990s, the Business purchased additional motor vehicles to distribute its products to its customers.

The Business' fleet of motor vehicles were all branded "ABCD" and are distinctly identifiable as belonging to the Business (i.e., the motor vehicles were branded with the words 'ABCD" and the telephone number of the Business).

Currently, the Business still owns and operates a fleet of ABCD branded vehicles to distribute its products from its facilities to customers which are located within specific Australian states.

The Business has also outsourced the delivery of its products from its processing facilities to customers in a number of Australian states to a company which specialises in deliveries.

However, all motor vehicles owned and operated by the transport company which deliver the Business' products are branded with the Business' name, logo and telephone number and are clearly associated with the Business.

The Business relies on logistic companies when moving products interstate.

M. Brands

The Partnership has operated the Business under the trading name "ABCD" since the Business commenced in 19XX.

N. Logo

The Business Logo was created when the Business commenced in 19XX. It has remained unchanged and has been used by the Business as part of its identity since commencement.

The logo and the words "ABCD" have always been an integral part of the Business. They were printed on the Business' shop at Premises A when the Business first commenced and are currently printed on each of the Business' premises.

They are also printed on each products supplied by the Business, uniforms of its employees and its delivery vehicles.

O. Customer Base

As at early 19YY, the Business sold its products to customers in the retail market and the wholesale market.

Customers of the Business included individuals (customers from the streets), retail shops, hotels, bars and restaurants throughout the metropolitan and regional areas of an Australian state.

Since 19YY, the Business' customer base has increased significantly.

The Business' current customer base is comprised predominantly of customers in the wholesale market, and to a limited extent, customers in the retail market.

The Business' customer base still includes individuals (via its factory shop sales, retail shops, hotels, bars and restaurants, but now also includes institutional food organisations, catering companies, butchers, takeaway shops, pubs, clubs, distributors, government organisations, cafes, bakeries and aged/health care organisations. The Business' customers are located across all states of Australia.

Contemplated Arrangements

1. Proposed Expansion into the Australian retail market

Whilst the Business commenced in 19XX in the Australian retail market and each of the Business' premises currently have factory shop sales through which the Business provides its products to customers in the retail market, the Business does not have a significant presence in the Australian retail market.

As the Business has now grown to a size where it has a national presence through its processing plants, suppliers and distribution channels across the States of Australia, the Partnership considers that it is equipped to provide the Business products to the Australian retail market.

The proposed retail operations will be 100% owned and managed by the Partnership; it will not be treated as a separate or independent Business;

The Partnership intends to achieve this by providing its products to supermarkets and/or retail shops 100% owned by the Partnership.

(i) Supermarkets

This involves providing the Business' products to supermarkets, which will display the Business' products for sale.

The Business will source inputs from its suppliers and use its processing, packaging, handling facilities and workers to produce more of its current products.

These products will be delivered to the supermarkets much in the same way that the Business currently delivers its products to its wholesale customers.

The products sold in the supermarkets will bear the same logo and name of the Business as currently provided in the Business' existing products.

The proposed operations will be treated for banking and accounting purposes as an extension of the existing Business. The Partnership Intends to continue to have one set of accounting books and financial statements for its entre business.

Management of the proposed retail operations will be run from the Business' current head office at its Premises C.

(ii) ABCD retail shops

Whilst the Partnership already supplies its products to takeaway shops, it considers that its current capabilities can be developed and expanded to accommodate a direct sale of its current products to the retail market through retail shops 100% owned by the Partnership.

The retail shops if established will bear the name 'ABCD' among its descriptive branding and may use the current Business' logo that has continued for in excess of X years. In other words the formal expansion into retail shops is likely to be similar to the Business' Premises A in the early 19ZYs, subject to receipt of modem marketing advice.

The Business will source inputs from its suppliers and use its processing, packaging, handling facilities and workers to produce more of its current products.

These products will be delivered to the retail shops much in the same way that the Business currently delivers its products to its wholesale customers.

The products sold in the retail shops will bear the name "ABCD" among its descriptive branding as currently provided in the Business' existing products.

The proposed operations will be treated for banking and accounting purposes as an extension of the existing Business. The Partnership intends to continue to have one set of accounting books and financial statements for its entire business.

2. Proposed Expansion into the International markets

Australia has a global reputation as a trusted source of food products due to its stringent regulatory regime and low levels of pollution, and the Business is recognised as a leading supplier of products in Australia. The Partnership has recently received interest from leading food organisations in the overseas country requesting the Partnership to export its products. The initial customers interested in buying the Business' products are customers in the international wholesale markets.

Recently the Partnership has trialled exporting two batches of its cooked and uncooked products to a foreign country.

The products that the Business will supply and distribute to the international markets;

• will be produced by the Business using the production techniques and facilities that the Business currently use to produce its products;

• will be produced by the Business using inputs sourced from primary producer, as currently occurs with the Business' products; and

• will bear the same logo that is provided in the Business' current products.

The proposed international operations will be 100% owned and managed by the Partnership; that is it will not be treated as separate or independent from the Business.

The Business will continue to operate under the trading name "ABCD".

3. Acquisition of one or more of the Partnership's suppliers which provides inputs to its products.

The Partnership considers that it has the existing processing, handling and distribution capabilities to accommodate an expansion of its products into the International markets, but it is concerned that the limited number of primary producer suppliers in Australia will jeopardise its ability to satisfy the needs of its international customers.

In particular, as the Partnership is not a primary producer, its ability to produce high quality products is heavily dependent on the provision of high quality inputs from its suppliers.

If the Partnership proceeds to provide its products to both the Australia retail market and the international markets, the Partnership will require a significant increase in supplies to produce the volume of products demanded by all of its customers.

The Partnership is concerned that there will be a shortage of high quality suppliers which are compatible with the Partnerships operations, or that its existing high quality suppliers will not supply the Business with the required volume of inputs and thereby jeopardise the Business operations.

On this basis, the Partnership intends to possibly acquire one or more of its key suppliers and to secure its supply and the future of the Business by ensuring that the supplier will supply solely to the Business.

In particular, the Partnership's current key suppliers are Provider A (which supplied Z% of the Business inputs during the year ended 30 June 20XZ) and Provider B (which supplied X% of the Business' inputs in the year ended 30 June 20XZ).

Both of these key suppliers do not currently provide their supplies solely to the Business.

After acquisition, the suppliers will not carry on a business in providing supplies to other competitors, but will solely supply to the Partnership to enable the Partnership to meet the demands of the Partnership providing its products to its current customers as well as its proposed increased customer base.

The Partnership predicts that if it expands into the Australian retail market and the International markets, it will require at least an additional 500 tonnes of high quality raw product inputs per annum.

The Partnership understands that if it is to acquire a production business of these raw products, such as Provider A or Provider B who have generally supplied the Partnership, it would substantially underwrite the raw product problem and stabilise and possibly minimise the prices of the specific raw products that can be purchased. It is also likely that if a production business of these raw products were to be acquired, then there would be significant cost savings to the business because of the synergistic enrichment of the business processing and cooking capabilities with the processing arm end cost associated with the production and delivery of raw products from the business.

Management of the suppliers which are acquired by the Partnership will continue to be run from the Business' current head office at Premises C.

The operations of the suppliers will be treated as an extension of the existing Business and the Partnership will have one set of accounting statements for its current Business and the proposed supply operations.

4. Ceasing to outsource its fleet of delivery vehicles

Since 19XX, the Partnership has owned and operated motor vehicles to distribute its products to its customers.

Whilst the Partnership currently still owns and operates a fleet of delivery vehicles in various Australian states, the Partnership has outsourced the delivery of the Business' products In other Australian states.

The Partnership considers that if it expands the Business into the Australian retail market and the international market, it is likely that it will require additional motor vehicles to distribute its products from its processing facilities to existing customers in the wholesale market, new customers in the wholesale market, retail outlets (i.e. supermarkets and/or retail shops), and export points (e.g. shipping docks) in a timely and efficient manner.

In relation to the various states, the Partnership intends to purchase additional motor vehicles.

In relation to the other States, the Partnership intends to resume ownership and operation of a fleet of delivery vehicles, and to cease the outsourcing of the delivery of its products on the basis of the principle of economies of scale involved in managing a fleet of delivery vehicles.

All vehicles will be 100% owned and managed by the Partnership.

The motor vehicles acquired by the Partnership will be used to distribute the Partnership's products in the same manner that the Partnership currently uses its own motor vehicles to distribute its products.

The motor vehicles will bear the Business' logo, the words 'ABCD' and the Business' telephone number, in the same manner as the motor vehicles currently owned and operated by the Partnership for the Business' use.

Relevant legislative provisions

Section 104-10(5)(a) of the ITAA 1997

Section 108-5(2)(b) of the ITAA 1997

Section 104-10(1) of ITAA 1997

Section 104-10(5) of ITAA1997

Section 995-1(1) of the ITAA 1997

Division 109 of ITAA 1997

Question 1

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 19YY such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 where the Partnership continues to carry on its business as a supplier and distributor of products to the wholesale market?

Detailed reasoning

Goodwill, or an interest in it, is a CGT asset, pursuant to section 108-5(2)(b) of the ITAA 1997.

When goodwill is disposed of, a CGT event A1 occurs, pursuant to section 104-10(1) of ITAA 1997.

However, if the taxpayer acquired the goodwill before 20 September 19YY, a capital gain or loss arising from the disposal of the goodwill will be disregarded, pursuant to section 104-10(5) of ITAA1997.

The ATO view on goodwill for the purposes of Capital Gains Tax (CGT) is explained in Taxation Ruling TR 1999/16 (TR 1999/16), which discusses the implications of the decision of the High Court of Australia in FC of T v. Murry 98 ATC 4585; (1998) 39 ATR 129, (FC of T v Murry). In FC of T v Murry, Goodwill is described as follows:

• Goodwill is the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it. The attraction of custom is central to the legal concept of goodwill. Goodwill is a quality or attribute that derives among other things from using or applying other assets of a business. 

• The meaning of goodwill has three different aspects namely property, sources and value.

• It is something that attaches to a business and is inseparable from the conduct of a business. It cannot be dealt with separately from the business with which it is associated. A business owner cannot dispose of goodwill separately from the business to which it attaches.

• Goodwill is a composite thing. It is an indivisible item of property that is legally distinct from the sources from which it emanates.

(All references to paragraphs hereafter are references to paragraphs of TR 1999/16)

The whole of the goodwill of a business is either pre-CGT goodwill or post-CGT goodwill. (paragraph 96)  The whole of the goodwill of a business that commenced before 20 September 19YY remains the same single pre-CGT asset (subject to Division 149 of ITAA 1997- about when an asset stops being a pre-CGT asset) provided the same business continues to be carried on.  

What goodwill means, depends on the character and nature of the business to which is attached. Goodwill differs in its composition in different trades or industries and in different business in the same trade or industry (paragraph 13).

When was the goodwill acquired?

Paragraph 52 of TR 1999/16 provides that

52. If a taxpayer commences business and starts to create goodwill, the goodwill of the business is acquired when the taxpayer starts work that results in the creation of the goodwill (subsection 109-10, item 1). When a taxpayer starts the work resulting in the creation of goodwill of a business is a question of fact dependent on the circumstances of each particular case.

Where a business expands as a result of the introduction of a new business operation or activity by a taxpayer, any goodwill that relates to the expanded business is merely an expansion of the business. If a business that commenced prior to 20 September 1985 is expanded, goodwill generated by the expanded business operations or activities will be an accretion to the pre-CGT goodwill (see paragraph 60 of TR 1999/16)

Is the same business being carried on?

A business may change to such an extent that it becomes a new business with new goodwill. In FC of T v Murry it is stated that, in determining whether the same business is being carried on, the sources of the goodwill may have changed so much that, although the business is of the same kind as previously conducted, it cannot be said to the same business.

Par 21 - 24 of IT 1999/16 states that if the essential nature or character of the business is not changed, the business remains the same business for the CGT goodwill provisions. The business may expand or contract activities or change the way in which a business is carried on, without ceasing to carry on the same business, provided the business retains its essential nature or character. Organic growth, expansion or diversification of a business by, for example:

a) adopting new, compatible operations;

b) servicing different clients; or

c) offering improved products or services

does not constitute a new business as long as the essential character or nature of the business remains unchanged.

It is a question of fact and degree whether the goodwill of a business is the same asset as it was when it was acquired. For the CGT goodwill provisions, we consider that the same business is carried on and no new goodwill asset is created if the business retains its same essential nature or character.

The same business is not carried on if;

a) through a planned or systematic process of change within a reasonable period of time, a business changes its essential nature or character; or

b) there is a sudden and dramatic change in the business brought about by either the acquisition or the shedding of activities on a considerable scale.

Par. 60 - 62 discusses internally generated goodwill and states the following: 

60. If a new business operation or activity introduced by a taxpayer is an expansion of an existing business (whether it commenced before or after 20 September 19YY), any goodwill built up in conducting the expanded business is merely an expansion of the existing goodwill of the business. If a business which commenced before 20 September 19YY (a "pre-CGT business') is expanded, goodwill generated in conducting the expanded business is merely an accretion to the pre-GGT goodwill.

61. In an introduced business activity is a new business, the goodwill attaching to that business is a new asset separate from the goodwill of the existing business.

62. Whether an increase in business operations or in the scale of activity constitutes an expansion of an existing business, or a new and separate business, is a question of fact dependent on the circumstances of each case. Factors that need to be considered in determining whether the business operation or activity is part of the existing business or is a new business include the nature of the new business operation or activity, the types of customers that the business operation or activity attracts and the extent to which the business operation or activity:

(a)    is subject to the same integrated management and control as the existing business;

(b)    is treated for banking and accounting purposes as an extension of the existing business or as a separate business;

(c)    uses one or more different trading names; and

(d)    is related to or dependent on the existing business in a practical, economic or commercial sense.

The question of whether a business has changed to such an extent that it is no longer the same business so that the goodwill of the old business ceases and goodwill of a new business is acquired is one of fact and degree. The following factors have to be considered as set out in paragraph 91:

• nature or character of the business

• its location and size

• the extent of changes in the assets and resources of the business

• the activities of the business; and

• the way in which the business is structured, carried on, managed and controlled.

The nature and character of the business

Paragraph 93 of TR 1999/16 states that for the CGT goodwill provisions, the same business is carried on and no new goodwill asset is created if the business retains its same essential nature or character and offers the following example:

A business printer a printer may have changed over time due to the purchase of new equipment and the adoption of improved technologies. The printer may now attract a different type of client such as large corporate clients 9 due to the capacity to produce high quality public relations material, annual reports, etc.). Formerly, the printer may only have provided services to small local businesses (e.g. business cards, calendars, invoice books and stationery.) No new business has been commenced. It is not a different business and the goodwill remains the same CGT asset. The printer is still conducting a printing business of the same essential nature or character, albeit one serving different clients.

Businesses may naturally evolve by serving different clients or clients in different markets and offering improved products or services (paragraph 94)

Paragraph 95 states that, unless the facts are such that it can be established that a new business has commenced - rather than an existing business continued - the goodwill of the business is not different from that existing when the business was originally acquired or commenced.

The Partnership contends that the following features of the Partnership's business show that while the business has expanded since 20 September 1985, the essential character of the business, being a supplier and distributor of products, has remained the same for the following reasons: 

• Since the Business was established in 19XX, it has supplied and distributed products;

• As at early 19YY, the Business supplied and distributed raw products, cooked products, uncooked products, smallgoods and foodstuff products;

• Since 19YY, the Business has grown in size and its range of products has varied over the years, but it continued and continues to supply and distribute products; and

• Currently, the Business supplies and distributes an extensive range of raw products, cooked products, uncooked products, smallgoods and foodstuff products.

The following factors are also relevant:

• The business did increase in size and expanded from operating from a single location in an Australian state to operating interstate, all over Australia;

• The expansion also included buying new and improved equipment for processing and storing the products;

• Mr and Mrs X continue to hold, directly and indirectly 100% ownership of the Partnership, despite the conversion of the Partnership into a Limited Partnership;

• Mr and Mrs X continue to function as the 'heads of the Business, overseeing and supervising the operations of the Business;

• The Partnership prepares one set of financial statements in respect of the Business;

• The trade mark and logo of the business remained the same from the outset;

• The ethos of the business of providing high quality products and personalized service, albeit at a higher price than some of the competitors, have remained the same;

• Production techniques of the Business have remained the same. Variation to the techniques since 19XX has been development and enhancement of its automated and production processes consistent with industry trends;

• As at early 19YY and ever since, the customer base of the business has been wholesalers and, to a limited extent, customers in the retail market.

Based on the facts presented by the Partnership, the goodwill of the Business is a pre-CGT asset. Despite expansion of the size, location, product range, technology and production processes, the character and nature of the Business did not change.

On the basis of the information provided in the application it appears that the Partnership is still a supplier and distributor of specific products as it has been since 19XX.

Although there has been an expansion of the business the Commissioner considers that this expansion has not resulted in a change to the essential nature of the business.

Organic growth, expansion or diversification of a business does not of itself, cause, it to be a new business provided the business retains its essential nature or character.

Goodwill remains a pre-CGT asset

In light of the above, the goodwill of the Business remains a pre-CGT asset as the business remains the same business and has not changed its essential nature.

Question 2

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership expands its customer base to the Australian retail market?

Detailed reasoning

The legal requirements discussed in Question 1 also apply to this question.

The Business commenced in 19XX in the Australian retail market and each of the Business' premises currently have factory shop sales through which the Business provides its products to customers in the retail market. However, apart from having factory outlets at its various locations through-out Australia, the Business does not have a significant presence in the Australian retail market.

The Partnership intends to provide the Business' products to the Australian retail market by providing its products to supermarkets and/or retail shops 100% owned by the Partnership.

It is noted that, in the case of expansion into the Australian retail markets, the Business may acquire one or more of its suppliers which provides inputs to its products to ensure sufficient supply and also to cease to outsource some or all delivery of its products and expand the capabilities of its own fleet or delivery vehicles.

Therefore these factors have to be taken into regard in determining whether the expansion of the Business to the retail market constitutes a change in business sufficient to create a new business and therefore new goodwill.

In considering whether the extension into the retail market will cause the business to change to such an extent that it becomes a new business with new goodwill, the legal requirements as set out in the detailed reasoning to Question 1, have to be considered.

In this regard, the following is of relevance:

In regard to the supply of the Business products to retail customers:

(i) The Business have supplied and distributed its products to retail customers since 19XX and continues to supply and distribute its products to retail customers via its factory shop sales;

(ii) The Business will continue to supply and distribute products;

(iii) The Business has a national presence and expansion to the Australian retail market can be facilitated through its processing plants, suppliers and distribution channels across the States of Australia. The Partnership considers that it is equipped to provide the Business products to the Australian retail market.

(iv) The poultry, meat, smallgoods and foodstuff products that the Business will supply and distribute to the Australian market;

• Will be produced by the Business using the production techniques and facilities that the Business use to produce its current products;

• Will be distributed by the Business to the supermarkets and retail shops using the same distribution channels currently used by the Business to distribute its current products

• Will be produced by the Business using inputs sourced from primary producers, as currently occurs with the Business' current products

• Will bear the name 'ABCD among its descriptive branding as currently occurs with the Business' current products and may use the Business' logo that has continued for in excess of X years.

(v) The proposed retail operations will be 100% owned and managed by the Partnership; it will not be treated as a separate or independent Business;

(vi) The Business will continue to operate under the name "ABCD";

(vii) Management of the proposed retail operations will be run from the Business' current head office at Premises C and;

(viii) The Partnership will have one set of accounting books and financial statements for its current Business and the proposed retail operations.

Taking into consideration all of the above, the fact that the Business will expand its customer base to the Australian retail market will not change the nature of the Business. The nature of the business will remain the same, although on an expanded scale.

However considering that expansion to the Australian retail market will go along with the acquisition of one or more of the current suppliers of the Business as well as the expansion of the Business' fleet of delivery vehicles, it is necessary to consider whether a new business is constituted by a sudden and dramatic change in the business brought about by either the acquisition or the shedding of activities on a considerable scale.

In regard to the acquisition of one or more of its suppliers which provide inputs to its products to ensure sufficient supply to the Business:

(i) The Business' ability to source high quality products form its suppliers is a critical factor to the Business' continued success in relation to its existing operations or its proposed expansions.

(ii) The proposed expansions to the Australia retail market and the international markets will require the Partnership to source additional supplies from primary producers.

(iii) The Partnership is concerned that there will be a shortage of high quality suppliers which are compatible with the Business, or that its existing suppliers will cease to supply the Business with its required volume of high quality inputs after the proposed expansions are well under way.

(iv) On this, basis, the Partnership is contemplating an acquisition of a poultry provider for the purpose of securing supply of high quality inputs in the context of the Business' proposed operations.

(v) The suppliers acquired by the Business will provide its supplies solely to the Partnership and their operations will be ancillary to the Business' operations.

(vi) The suppliers will not carry on a business in providing supplies to other competitors of the business, but will solely supply to the Partnership for the purpose of furthering its business in supplying and distributing products and therefore be ancillary to the Business' operations.

In regard to the Partnership ceasing to outsource some or all delivery of its products and expand the capabilities of its own fleet or delivery vehicles

(i) The Partnership has owned and operated motor vehicles for the distribution of its products to its customers since 19XX.

(ii) In a number of Australian states, the Partnership still owns and operates the fleet of delivery vehicles, however in other Australian states the delivery of the Business' products have been outsourced.

(iii) The Partnership considers ceasing the outsourcing of some or all of the delivery of its products and to expand the capabilities of its own fleet of delivery vehicles, as it will require additional motor vehicles to distribute its products.

(iv) The rationale behind ceasing of outsourcing of the delivery of its products is the principle of economies of scale involved in managing a fleet of delivery vehicles.

(v) The motor vehicles will be used to distribute the products of the Partnership to existing and new customers in the same manner as current distributions are made.

(vi) All vehicles will bear the ABCD logo and telephone number.

Paragraph 63 and 64 of TR 1999/16 states that if a taxpayer with an existing business adds an additional business to that business it is a question of fact, depending on the circumstances of each particular case, whether the additional business is subsumed into and forms part of the existing business or whether the two businesses remain as separate businesses. Where a pre-CGT business is combined with another business acquired post- CGT and they are conducted as one business without the pre-CGT business losing its essential nature or character, the goodwill of the post-CGT business is subsumed into the goodwill of the pre-CGT business and all of the goodwill of the business is taken to have been acquired before 20 September 1985.

The pre-CGT business must not lose its essential nature or character in the sense that it must remain the same business and not be overwhelmed by the post- CGT business in such a way that it has become a different business. The purchase of the post-CGT business must involve merely organic growth of the pre-CGT business or an expansion or accretion to it in reasonable proportions or it gives rise to a new, different business and its goodwill is a new asset.

Paragraph 94 of TR 1999/16 states that the change in the nature of the clients of a business does not of itself mean the business is a new business with new goodwill. Many businesses naturally evolve by serving different clients or clients in different markets and offering improved products or services.

By acquiring one or more of its current suppliers, the nature of the Business does not become that of a primary production business, as it will not enter the market as a provider of raw products, but the primary production function business will exist solely to supply the Partnership with the necessary raw product to enable it to meet the demands of its expanded market. Therefore the new function will be ancillary to that of the business and not submerge the business. The nature of the business will remain that of a supplier and distributor of products, although it will be supplying to an expanded market.

Accordingly, the cessation of outsourcing delivery of its products and the expansion of the capability of its fleet in order to distribute its products to the client base does not change the nature of the Business.

Paragraph 95 of TR 1999/16 states that unless the facts are such that it can be established that a new business has commenced - rather than en existing business continued - the goodwill of the business is not different from that existing when the business was originally acquired or commenced.

From the facts presented in this instance there are no grounds for a conclusion that a new business will commence.

If the business proceeds with expansion into the Australian retail market on the basis set out above, the Goodwill of the Business will retain its pre-CGT status.

Question 3

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership expands its customer base to the international markets?

Detailed reasoning

The legal requirements discussed in Question 1 also apply to this question.

The Partnership is considering expanding its business by supplying and distributing its products to customers in the international markets.

In considering whether the expansion into the international markets will cause the business to change to such an extent that it becomes a new business with new goodwill, the legal requirements as set out in the detailed reasoning to Question 1, have to be considered.

In this regard, the following is relevant:

(i) The nature of the Business in light of the proposed expansion will continue to be the supply and distribution of products;

(ii) The types of customers attracted by the proposed expansion would not be dissimilar to the business' current customer base, given that the initial customers interested in buying the Business' products are customers in the international wholesale markets (e.g. food organisations).

(iii) The products that the Business will supply and distribute to the international markets;

• Will be produced by the Business using the production techniques and facilities that the Business currently use to produce its products;

• Will be produced by the Business using inputs sourced from primary producer, as currently occurs with the Business' products

• Will bear the same logo that is provided in the Business' current products;

• Will be delivered to the Business' facilities export points (e.g. shipping docks) through the use of the Business' current distribution channels. (i.e. via " ABCD" branded motor vehicles;

(iv) The proposed international operations will be 100% owned and managed by the Partnership; that is it will not be treated as separate or independent from the Business;

(v) The Business will continue to operate under the trading name "ABCD".

In expanding to the International market, the same (although expanded) production techniques will be used, the Business will be under the same management, the same line of products will be provided, although it is reasonable to assume that the products available will be improved and expanded as within the normal course of the business of a supplier and distributor of specific products. Therefore, the fact that the Business will expand its customer base to the International market will not change the nature of the Business. The nature of the business will remain the same, although on an expanded scale.

However considering that the expansion to the international market will go along with the acquisition of one or more of the current suppliers of the Business as well as the expansion of the Business' fleet of delivery vehicles, it is necessary to consider whether a new business is constituted by a sudden and dramatic change in the business brought about by either the acquisition or the shedding of activities on a considerable scale.

In regard to the acquisition of one or more of its suppliers which provide inputs to its products to ensure sufficient supply to the Business:

(i) The Business ability to source high quality products form its suppliers is a critical factor to the Business' continued success in relation to its existing operations or its proposed expansions.

(ii) The proposed expansions to the Australia retail market and the international markets will require the Partnership to source additional supplies from primary producers.

(iii) The Partnership is concerned that there will be a shortage of high quality suppliers which are compatible with the Business, or that its existing suppliers will cease to supply the Business with its required volume of high quality inputs after the proposed expansions are well under way.

(iv) On this, basis, the Partnership is contemplating an acquisition of a specific provider for the purpose of securing supply of high quality inputs in the context of the Business' proposed operations.

(v) The suppliers acquired by the Business will provide its supplies solely to the Partnership and their operations will be ancillary to the Business' operations.

(vi) The suppliers will not carry on a business in providing supplies to other competitors of the business, but will solely supply to the Partnership for the purpose of furthering its business in supplying and distributing specific products and therefore be ancillary to the Business' operations.

In regard to the Partnership ceasing to outsource some or all delivery of its products and expand the capabilities of its own fleet of delivery vehicles

(i) The Partnership has owned and operated motor vehicles for the distribution of its products to its customers since 19XX.

(ii) In various Australian states the Partnership still owns and operates the fleet of delivery vehicles, however in other Australian states the delivery of the Business' products have been outsourced.

(iii) The Partnership considers ceasing the outsourcing of some or all of the delivery of its products and to expand the capabilities of its own fleet of delivery vehicles, as it will require additional motor vehicles to distribute its products.

(iv) The rationale behind ceasing of outsourcing of the delivery of its products is the principle of economies of scale involved in managing a fleet of delivery vehicles.

(v) The motor vehicles will be used to distribute the products of the Partnership to existing and new customers in the same manner as current distributions are made.

(vi) All vehicles will bear the ABCD logo and telephone number.

Paragraphs 63 and 64 of TR 1999/16 state that if a taxpayer with an existing business adds an additional business to that business it is a question of fact, depending on the circumstances of each particular case whether the additional business is subsumed into and forms part of the existing business or whether the two businesses remain as separate businesses. Where a pre-CGT business is combined with another business acquired post- CGT and they are conducted as one business without the pre-CGT business losing its essential nature or character, the goodwill of the post-CGT business is subsumed into the goodwill of the pre-CGT business and all of the goodwill of the business is taken to have been acquired before 20 September 1985.

The pre-CGT business must not lose its essential nature or character in the sense that it must remain the same business and not be overwhelmed by the post- CGT business in such a way that it has become a different business. The purchase of the post-CGT business must involve merely organic growth of the pre-CGT business or an expansion or accretion to it in reasonable proportions or it gives rise to a new, different business and its goodwill is a new asset.

Paragraph 94 of TR 1999/16 states that the change in the nature of the clients of a business does not of itself mean the business is a new business with new goodwill. Many businesses naturally evolve by serving different clients or clients in different markets and offering improved products or services.

By acquiring one or more of its current suppliers, the nature of the Business does not become that of a primary production business, as it will not enter the market as a provider of raw products, but the primary production function business will exist solely to supply the Partnership with the necessary raw meat to enable it to meet the demands of its expanded market. Therefore the new function will be ancillary to that of the business and not submerge the business. The nature of the business will remain that of a supplier and distributor of poultry, meat, small goods and foodstuff products, although it will be supplying to an expanded market.

Accordingly, the cessation of outsourcing the delivery of its products and the expansion of the capability of its fleet in order to distribute its products to the expanded client base does not change the nature of the Business.

Paragraph 95 of TR 1999/16 states that unless the facts are such that it can be established that a new business has commenced - rather than en existing business continued - the goodwill of the business is not different from that existing when the business was originally acquired or commenced.

From the facts presented in this instance there are no grounds for a conclusion that a new business will commence.

It is the Commissioner's view that the expansion of the Business to the international market does not constitute a new business, but an organic expansion of the current business. Therefore, if the business proceeds with expansion into the international markets on the basis set out above, the Goodwill of the Business will retain its pre-CGT status.

Question 4

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership acquires one or more of its suppliers which provides inputs to its products?

Detailed reasoning

The acquisition by the Partnership of one or more of its suppliers has been discussed in the context of its expansion into the Australian retail market and the international market in Questions 2 and 3 respectively.

In both contexts it will not result in the business becoming a new business and accordingly the goodwill of the Partnership will retain its pre-CGT status, so that any capital gain or loss made on a disposal of the goodwill is regarded pursuant to Section 104-10(5)(a) of the ITAA 1997.

Question 5

Is the whole of the current goodwill of the Partnership considered to be acquired before 20 September 1985 such that any capital gain or loss made on a disposal of the goodwill is disregarded pursuant to Section 104-10(5)(a) of the ITAA 1997 if the Partnership ceases to outsource some or all delivery of its products and expand the capabilities of its own fleet or delivery vehicles?

Detailed reasoning

The cessation by the Partnership of outsourcing some or all delivery of its products and the expansion of the capabilities of its own fleet or delivery vehicles have been discussed in the context of its expansion into the Australian retail market and the international market in Questions 2 and 3 respectively.

In both contexts it will not result in the business becoming a new business and accordingly the goodwill of the Partnership will retain its pre-CGT status, so that any capital gain or loss made on a disposal of the goodwill is regarded pursuant to Section 104-10(5)(a) of the ITAA 1997.