| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation number: 1051290824093
Disclaimer
You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.
Date of advice: 11 October 2017
Ruling
Subject: GST and the supply of a going concern
Question 1
Is your supply a GST-free supply of a going concern?
Answer
Yes.
Relevant facts and circumstances
You are registered for GST.
You intend to sell an enterprise without the trading name but will licence the business name to the purchaser for an agreed period.
All assets and rental leases will form part of the sale.
Full client base will continue and will be transferred to the purchaser.
The purchaser is registered for GST.
The sale will be for consideration.
You will carry on the enterprise until the day of the supply without interruption.
There will be an agreement in writing at the time of supply that the sale is one of a GST-free going concern.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
Reasons for decision
Going concern
Under subsection 38-325(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a 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.
According to the facts provided all conditions mentioned under subsection 38-325(1) of the GST Act will be satisfied at settlement.
However, for a supply to be a supply of a going concern subsection 38-325(2) of the GST Act also needs to be satisfied.
The statutory term 'supply of a going concern' is defined in subsection 38-325(2) of the GST Act as 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).
All of the things necessary
As you will carry on the business until the day of the supply, it remains to be determined whether under the arrangement, you will supply to the purchaser all of the things that are necessary for the continued operation of the enterprise.
The meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise' is explained in GSTR 2002/5. Paragraph 80 of GSTR 2002/5 states:
The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.
Your enterprise is a business operating under a trading name. In light of the nature of the enterprise and the core attributes of that enterprise the trading name is one of the things that are necessary for the continued operation of the identified enterprise.
Paragraph 38-325(2)(a) of the GST Act requires that all things necessary for the continued operation of the enterprise be supplied to the purchaser. The definition of the term 'supply' in section 9-10 of the GST Act includes 'a creation, grant, transfer, assignment or surrender of any right'. A licence to use a trading name is a grant of a right for the purposes of the definition. Therefore, for the purposes of paragraph 38 325(2)(a) of the GST Act an entity supplies the trading name when it grants the purchaser a licence to use it.
Accordingly, you will supply to the purchaser all of the things necessary for the continued operation of the enterprise. Therefore, you will make a GST-free supply of a going concern under subsection 38-325(2) of the GST Act.
The licence must be granted on or before the day of the supply. The licence cannot be granted after the day of the supply.
Please note that in the event there are two contracts in place; one for the supply of the enterprise and the other for the supply of the licence, for the supply to be a supply of a GST-free going concern both contracts should be part of the one arrangement.