Edited version of your written advice

Authorisation Number: 1012858598726

Date of advice: 13 August 2015

Ruling

Subject: GST and supplies of a going concern

Question 1

Will the sale from the Vendor of the Business to the Business Purchaser, in accordance with the terms of the Business Sale Agreement (together with the grant of the leases over the Business Land and Car Park Land) and the Stakeholder Deed 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)?

Advice

Yes, the Vendor's sale of the Business to the Business Purchaser, in accordance with the terms of the Business Sale Agreement (together with the grant of the leases over the Business Land and Car Park Land) and the Stakeholder Deed will be a GST-free supply of a going concern under section 38-325 of the GST Act.

Question 2

If the answer to question 1 is yes, is the supply of the call option in connection with the sale to the Business Purchaser a GST-free supply under subsection 9-30(1) of the GST Act?

Advice

Yes, the supply of the call option in connection with the sale of the Business to the Business Purchaser is a GST-free supply under subsection 9-30(1) of the GST Act.

Question 3

Will the Vendor's sale of the Business Land to the Business Land Purchaser, in accordance with the terms of the Business Land Sale Contract and the Stakeholder Deed, be a GST-free supply of a going concern under section 38-325 of the GST Act?

Advice

Yes, the Vendor's sale of the Business Land to the Business Land Purchaser, in accordance with the terms of the Business Land Sale Contract and the Stakeholder Deed, will be a GST-free supply of a going concern under section 38-325 of the GST Act.

Question 4

If the answer to question 3 is yes, is the supply of the call option in connection with the sale of the Business Land to the Business Land Purchaser a GST-free supply under subsection 9-30(1) of the GST Act?

Advice

Yes, the supply of the call option in connection with the sale of the Business Land to the Business Land Purchaser is a GST-free supply under subsection 9-30(1) of the GST Act.

Question 5

Will the Vendor's sale of the Car Park Land to the Car Park Land Purchaser, in accordance with the terms of the Car Park Land Sale Contract and the Stakeholder Deed, be a GST-free supply of a going concern under section 38-325 of the GST Act?

Advice

Yes, the Vendor's sale of the Car Park Land to the Car Park Land Purchaser, in accordance with the terms of the Car Park Land Sale Contract and the Stakeholder Deed, will be a GST-free supply of a going concern under section 38-325 of the GST Act.

Question 6

If the answer to question 5 is yes, is the supply of the call option in connection with the sale of the Car Park Land to the Car Park Land Purchaser a GST-free supply under subsection 9-30(1) of the GST Act?

Advice

Yes, the supply of the call option in connection with the sale of the Car Park Land to the Car Park Land Purchaser is a GST-free supply under subsection 9-30(1) of the GST Act.

Question 7

If the supplies referred to in questions 1 to 6 are GST-free, will the Commissioner make a declaration under section 165-40 of the GST Act to negate the GST-free treatment?

Advice

No, the Commissioner will not make a declaration under section 165-40 of the GST Act to negate the GST-free treatment of the Vendor's supplies that are referred in questions 1 to 6.

Relevant facts

The Vendor is registered for goods and services tax (GST). The Vendor is the owner and operator of a Business which is located in Australia.

The assets that comprise the Vendor's business include the following:

The Business which is used to operate the business, comprised of the plant and equipment, stock, goodwill, statutory, liquor and gaming licences, domain name and registered business name.

The Land, including the improvements on that land, on which the business is situated.

The Car Park Land, including the improvements on that land, on which the business is situated.

The purchasers are as follows:

Purchaser - is registered for GST.

Business Land Purchaser - is registered for GST.

Car Park Land Purchaser - is registered for GST.

The following agreements have been provided:

Stakeholder Deed - provides for the completion and timing of sales. This is entered into between the Vendor and Business Purchaser. Under the Stakeholder Deed, the parties recognise that completion of the Business Sale Agreement will occur first, together with the grant of the lease for the Land and Car Park Land. On the same day, shortly following completion of the Business Sale Agreement and grant of the leases in respect of the Business Land and Car Park Land, the Business Land Sale Contract and Car Park Land Sale Contract will be completed (with the Business Land and the Car Park Land being sold subject to the leases).

Put and Call Option Deed - provides for the sale of Business. This is entered into between the Vendor and the Business Purchaser. The call option fee amount will be offset against the sale once it is finalised.

Sale of Business Agreement - provides for the Vendor to sell the Business (excluding the Business building) to the Business Purchaser and for the parties to enter into leases - one for the Business Land and one for the Car Park Land.

The parties agree that the supply of the Business to the Business Purchaser pursuant to this agreement constitutes the supply of a going concern for the purposes of the GST Law. The Vendor warrants that it will carry on the business until the day of the supply.

Put and Call Option Deed - for the sale of the Business Land. This is entered into between the Vendor and the Business Land Purchaser. The call option fee amount will be offset against the sale once it is finalised.

Contract for the sale of the Business Land - is between the Vendor and the Business Land Purchaser. The Business Land Purchaser and the Vendor agree that the supply of the Business Land is the supply of a going concern for the purposes of the GST law. The Vendor warrants that (i) it will carry on the enterprise constituted by the Business Land until settlement; and (ii) it is supplying all things necessary for the continued operation of the enterprise constituted by the Business Land being the leasing enterprise.

Lease agreement for the Business Land - the lease will commence immediately upon completion of the Business Sale Agreement. The terminating date is 12 months after the day of completion of the Business Sale Agreement.

Put and Call Option Deed - for the sale of Car Park Land between the Vendor and the Car Park Land Purchaser. The call option fee amount will be offset against the sale once it is finalised.

Contract for the sale of Car Park Land - is between the Vendor and the Car Park Land Purchaser. The Car Park Land Purchaser and the Vendor agree that the supply of the Car Park Land is the supply of a going concern for the purposes of the GST law. The Vendor warrants that (i) it will carry on the enterprise constituted by the Car Park Land until settlement; and (ii) it is supplying all things necessary for the continued operation of the enterprise constituted by the Car Park Land being the leasing enterprise.

Lease agreement for Car Park Land - the lease is commencing immediately upon completion of the Business Sale Agreement. Terminating date is 12 months after the day of completion of the Business Sale 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 165-5

A New Tax System (Goods and Services Tax) Act 1999 Section 165-40

Reasons for decisions

Questions 1, 3 and 5

Summary

The supplies of the Business, the Business Land and the Car Park Land will each be a GST-free supply of a going concern under section 38-325 of the GST Act.

Detailed reasoning

A supply of a going concern is GST-free where section 38-325 of the GST Act is satisfied. In that there is a supply for consideration, the recipient is registered for GST, the supplier and the recipient agree in writing that the supply is of a going concern.

A supply is of a going concern where under an arrangement 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.

Sale of Business

In this circumstance, the supply will be a supply of a going concern as the supply of the Business by the Vendor to the Business Purchaser will be made under an arrangement where the Vendor will supply to the Business Purchaser all of the things that are necessary for the continued operation of the enterprise, such as business assets and entering into leases for the Business Land and Car Park Land on settlement, and the Vendor will carry on the enterprise till the day of supply.

The supply of going concern will be GST-free as there will be a supply of the Business from the Vendor to the Business Purchaser for consideration, the Business Purchaser is registered for GST, the Vendor and the Business Purchaser have agreed in writing that the supply will be a supply of going concern.

Supply of the Business Land and Car Park land

The Vendor will enter into lease agreements for the Business Land and Car Park Land with the Business Purchaser on the day of the settlement of the sale of the Business. Later on the same day, the Vendor will settle the contracts for the sale of the Business Land and Car Park Land.

In this circumstance, the supply of the Business Land and Car Park Land will each be a supply of a going concern as the Vendor will supply to the purchasers all of the things that are necessary for the continued operation of each leasing enterprise, and the Vendor will carry on the leasing enterprises till the day of supply.

Each supply of a going concern will be GST-free as the supply of a leasing enterprise by the Vendor to the purchasers of the Business Land and Car Park Land will be for consideration, the Business Land Purchaser and the Car Park Purchaser are registered for GST, the Vendor and the purchasers have agreed in writing that the supplies will both be supplies of a going concern.

Questions 2, 4, and 6

Summary

The supplies of call option by the Vendor to the purchasers in connection with the supplies of the Business, Business Land and Car Park Land are GST-free under paragraph 9-30(1)(b) of the GST Act.

Detailed reasoning

Under subsection 9-30(1) of the GST Act, a supply is GST-free if it is GST-free under Division 38 or under a provision of another Act, or it is a supply of a right to receive a supply that would be GST-free.

The substance of a call option transaction is the supply of a right, which is a separate transaction from the exercise of the option.

In this circumstance the supplies of call options by the Vendor were supplies of rights which entitled:

• the Business Purchaser to acquire the Vendor's Business;

• the Business Land Purchaser to acquire the Vendor's Business Land; and

• the Car Park Land Purchaser to acquire the Vendor's Car Park Land.

As determined above, the supply of the Business, Business Land and Car Park Land will be supplies of a going concern under section 38-325 of the GST Act.

Consequently, the supplies of call options to the Business Purchaser, Business Land Purchaser and Car Park Land Purchaser are GST-free under paragraph 9-30(1)(b) of the GST Act.

Question 6

Division 165 of the GST Act is a general anti-avoidance provision.

Section 165-40 of the GST Act gives the commissioner the discretion to negate a 'GST benefit' that an entity gets or got from a scheme to which Division 165 of the GST Act applies. However, before the Commissioner can exercise the discretion in section 165-40 of the GST Act, the elements of Division 165 of the GST Act must be satisfied.

The elements of Division 165 of the GST Act may be summarised as follows:

i. the existence of a 'scheme;

ii. an entity (the avoider) must have obtained a 'GST benefit' from the scheme; and

iii. it must be reasonable to conclude that the sole or dominant purpose of any entity entering into or carrying out the scheme, or part of the scheme, or that the principal effect of the scheme, or part of the scheme, was the obtaining of a GST benefit from the scheme.

After taking into consideration the information received, we are of the view that all the elements of Division 165 of the GST Act are not satisfied as:

i. For Division 165 purposes, the scheme and counterfactual could arguably be identified in two broad ways for consideration:

1. Taking the steps necessary to split the GST-free sale of a going concern between three purchasers rather than making the sale to one entity; or

2. Taking the steps necessary to treat the sale as a GST-free supply of a going concern rather than a taxable supply.

ii. If the scheme identified involves the steps necessary to split the GST-free sale between the three purchasers, rather than making a GST-free sale only to one purchaser, then our view is that the Vendor in this case would not receive a GST benefit from this scheme. This is because in both scenarios the sale/s would be GST-free under paragraph 38-325(1)(c) of the GST Act.

If the scheme identified is to treat the sale as GST-free rather than taxable under section 9-5 of the GST Act, then Division 165 would not apply as this is expressly allowed for by section 38-325 of the GST Act. That is, paragraph 165-5(1)(b) is not satisfied and subsection 165-5(3) is not applicable here.

iii. The purchasers have offered what appear to be valid commercial reasons for why the transaction has been structured this way. Therefore, we do not think it would be reasonable to conclude that the Vendor entered into the scheme for the sole or dominant purpose of getting a GST benefit or that the principal effect of the scheme is to get a GST benefit (paragraph 165-5(c)of the GST Act).

In this instance, the Commissioner will not make a declaration under section 165-40 of the GST Act to negate the GST-free treatment of the supplies made by the vendor

Other information:

A recipient of a supply of a going concern that intends to make supplies which are neither taxable nor GST-free may be required by section 135-5 of the GST Act to make an initial increasing adjustment.

The recipient of a supply of a going concern is required to make a further increasing or decreasing adjustment under section 135-10 of the GST Act where the proportion of the supplies made through the enterprise which are neither taxable nor GST-free has changed from the proportion of intended supplies. Section 135-10 of the GST Act requires that, in these circumstances, an increasing or decreasing adjustment is to be made using the method contained in Division 129 of the GST Act.