Edited version of your written advice

Authorisation Number: 1013027845168

Date of advice: 10 June 2016

Ruling

Subject: Goods and services tax: GST free sale of going concern

Question 1

Was the supply of the Business, by a partnership to 'A', a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This is because on settlement date you had not provided the purchaser with all of the things that are necessary for the continued operation of your enterprise, that being the Property from which the business was operated.

Question 2

Was the supply of the Business, by the partnership to 'A', a taxable supply for the purposes of section 9-5 of the GST Act?

Answer

Yes.

Question 3

Was the supply of the Property, by the partnership to 'B', a taxable supply for the purpose of section 9-5 of the GST Act?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST and operate as a partnership. There are more than five partners.

You carried on a business (the Business) from particular premises (the Property).

The Property was acquired by a third party in their capacity as trustee and holds this property on behalf of a number of beneficiaries under a bare trust arrangement.

You have advised that the partners of your partnership and the beneficiaries under the bare trust arrangement are the same.

The Record of Certificate of Title illustrates the trustee is listed as the registered proprietor of the Property.

You sold the Business to 'A'. On the same date, the trustee sold the Property to 'B'.

Two sales contracts were entered into and it was agreed in writing that the sale of the Business and the Property are of a going concern and that the buyer/s were being supplied with all things necessary for the business to continue to be operated.

The sale of the Business included the sale of all goodwill and all plant and equipment otherwise necessary for the operation of the business.

At the time of the sale of the Business no formal agreement (lease or otherwise) was in place in respect of your use of the Property to conduct your business. Further, a new lease was not entered into at the time of sale of the Property.

Both you and the purchaser of the Business ('A') are registered for GST.

The purchaser of the Property ('B') was not registered for GST.

Relevant legislative provisions

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

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Division 38

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325 (2)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(2)(b)

Reasons for decision

Detailed in these Reasons for decision, please note:

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all terms marked by an *asterisk are defined terms in the GST Act

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Going Concern

You must pay the GST payable on any taxable supply that you make.

Section 9-5 states that you make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone, and

(d) you are *registered for GST, or *required to be registered.

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

A supply is a GST-free supply of a going concern when all of the requirements of section 38-325 are satisfied.

Section 38-325 states:

(1) The *supply of a going concern is GST-free if:

(a) the supply is for *consideration; and

(b) the *recipient is *registered or *required to be registered; and

(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.

(2) A supply of a going concern is a supply under an arrangement under which:

(a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and

(b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

A two-step approach is required to determine firstly, whether the supply is a supply of a going concern and if it is, whether the supply of the going concern is GST-free.

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5) explains what is a 'supply of a going concern' and also when the 'supply of a going concern' is GST-free.

Subsection 38-325(2) requires:

• an arrangement

• an identified enterprise

• that the supplier supplies all things necessary for the continued operation of the enterprise, and

• the supplier carries on, or will carry the enterprise until the day of the supply.

Supply under an arrangement

It is not a supply itself that must satisfy the requirements of paragraphs 38-325(2)(a) and (b), but the arrangement under which the supply is made.

Paragraphs 19 and 20 of GSTR 2002/5 state:

19. A supply is defined in section 9-10. The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise, that is, the enterprise referred to in paragraphs 38-325(2)(a)and (b) (the 'identified enterprise').

20. The supplier and the recipient may identify the arrangement and the supplies under the arrangement, which in aggregate, may comprise the 'supply of a going concern', 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…

You entered into two separate sales contracts in respect of the sale of the Business to 'A' and the Property to 'B'. Settlement for both occurred on same date. That is, you made supplies under multiple contracts that relate to the same enterprise and as such it is considered that this is an arrangement that satisfies one of the requirements of subsection 38-325(2).

Identified enterprise

Paragraph 29 of GSTR 2002/5 provides that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). This is the enterprise for which the supplier must supply all of the things that are necessary for its continued operation.

The term 'enterprise' is defined in section 9-20 and includes amongst other things, an activity, or series of activities, done on a regular or continuous basis, in the form of a business.

It is accepted you are carrying on an enterprise. This is the identified enterprise.

All things necessary

The meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise' is considered in paragraphs 74 and 75 of GSTR 2002/5, which state:

74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.

75. Two elements are essential for the continued operation of an enterprise:

the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion…

Paragraphs 90 through 99 of GSTR 2002/5 provide that where premises are necessary for the continued operation of an enterprise, these premises, or a right to occupy these premises must be supplied for the supply to qualify as a GST-free supply of a going concern

It is considered that premises are necessary for the continued operation of your enterprise. Therefore, the Property or a right to occupy the property must be supplied as one of the 'things' necessary.

In your case, you supplied the Business to 'A' and the Property was supplied to 'B'. That is, two separate supplies were made under two contracts to two different recipients.

Paragraph's 132 and 133 of GSTR 2002/5 consider the supply of parts of an existing enterprise to two or more recipients and states:

132. Where the owner of both a business enterprise and of the real property upon which the business enterprise is necessarily conducted sells the business enterprise to a second entity and the business premises to a third entity, the supply to the second entity will not be the 'supply of a going concern'. This is because the second entity has not been supplied with one of the things necessary for the continued operation of that enterprise, by the supplier, that is, the business premises.

133. Where the owner of both the business enterprise and the premises grants a lease of the premises in favour of the second entity by the day of the supply of the business enterprise to that second entity, the supplier is supplying the second entity with all of the things that are necessary for the continued operation of the enterprise. The requirement that the premises are supplied to the second entity is met even if the property is subsequently sold to a third entity subject to a lease.

Consequently, upon settlement, you did not provide the purchaser with all of the things that were necessary for the continued operation of your enterprise, being the Property from which the business was operated. This was supplied to 'B'. Accordingly, the supply of the Business, by the partnership to 'A' is not a GST-free supply of a going concern for the purpose of section 38-325 of GST Act.

Taxable Supply

Pursuant to section 9-5, the supply of the Business by the partnership to 'A' is a taxable supply as the supply is:

• for consideration

• was made in the course or furtherance of your caravan park and roadhouse business

• is connected with the indirect tax zone; and

• you are registered for GST.

Similarly, the supply of the Property to 'B' is a taxable supply by the partnership pursuant to section 9-5.