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Edited version of your written advice
Authorisation Number: 1051302095479
Ruling
Subject: GST and supply of a going concern
Question
Will your supply of the Business under the Business Sale Agreement 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)?
Answer
Yes, your supply of the Business under the Business Sale Agreement will be a GST-free supply of a going concern under section 38-325 of the GST Act.
Relevant facts and circumstances
You advised the following facts:
● You have agreed to sell to the purchaser one of the functional business units of your enterprise.
● The purchaser is registered for GST.
● You provided a copy of the draft Business Sale Agreement (BSA).
● The amount of consideration is specified in the BSA.
● Under the BSA, the parties agree that the supply of the Business is a sale of a going concern.
● The Business is defined in the BSA.
● The BSA lists the assets that are being provided including:
● Inventory
● Purchased Inventory
● Working Capital Statement assets
● Contracts
● Intellectual Property
● Property, Plant and Equipment
● Additional Plant and Equipment, and
● Goodwill
● Under the BSA, the purchaser will make offers of employment to each employee in the Business.
● The BSA lists obligations of the parties with respect to completion of the BSA including;
● novation of the key leases to the purchaser
● transfer of the property licences to the purchaser
● the assigning or novating to the purchaser the “Key contracts” which are listed in the BSA.
● Under the BSA, you must assign to the purchaser each Contract and your rights under those contracts.
● Facilities at two locations are “excluded facilities” in that they are not being made available to the purchaser.
● These facilities are predominantly used by you in another part of your enterprise and are not integral to the Business.
● Work performed at those facilities can be performed at other facilities already operated by the purchaser.
● The plant and equipment (identified as Additional Plant and Equipment) at the two “excluded facilities” that is used in the Business will be supplied to the purchaser. The value of the Additional Plant and Equipment is not to exceed a specified monetary amount.
● The BSA lists the shared contracts that are not used exclusively in the Business. Under the BSA, you and the purchaser must each use reasonable endeavours to enter into multiple contracts in lieu of the original shared contracts on terms which substantially reflect the existing terms.
● Under the BSA, you agree to carry on the Business until completion.
Relevant legislative provisions
Section 38-325 GST Act
Reasons for decision
Under section 38-325 of the GST Act, a sale of a going concern will be GST-free if the conditions of that section are satisfied.
Subsection 38-325(1) of the GST Act requires that the sale is for consideration, the recipient is registered or required to be registered for GST and the supplier and the recipient have agreed in writing that the sale is of a going concern.
Based on the facts provided by you, the conditions in subsection 38-325(1) of the GST Act will be met when the sale is completed on the completion date.
A supply of a going concern is defined in subsection 38-325(2) of the GST Act to mean a supply under an arrangement under which:
● the supplier supplies to the recipient all of the things necessary for the continued operation of the enterprise, and
● the supplier carries on the enterprise until the day of the supply.
An enterprise for the purposes of subsection 38-325(2) of the GST Act can be part of a larger enterprise. Based on the facts provided by you, it is accepted that the conduct of the activities relating to the Business is an enterprise in itself.
Therefore, you will need to provide all of the things necessary for the continued operation of the Business.
You have advised that you are providing to the purchaser the following:
● the assets of the Business
● access to the leased facilities (by novation) and the licensed facilities (by transfer), and
● assigning the Contracts.
In addition, employees will be offered employment by the purchaser.
You will not be providing facilities at the “excluded facilities” and explained that these facilities are predominantly used by you in another part of your enterprise. It is accepted that these facilities are not necessary for the continued operation of the Business.
However, you will be providing the plant and equipment located at those facilities that are used in the Business. As they are used in the enterprise, they will be supplied as part of the assets of the enterprise and will not be a separate taxable supply.
You have agreed that you will carry on the enterprise until the date of completion.
Therefore, subsection 38-325(2) of the GST Act will be satisfied.
As all of the requirements of section 38-325 of the GST Act will be satisfied in the circumstances outlined by you, you will make a GST-free supply of a going concern when you supply the Business to the purchaser.