Edited version of your written advice

Authorisation Number: 1051330851221

Date of advice: 13 February 2018

Ruling

Subject: GST on Assignment of Intellectual Property

Question

Are you, X Pty Ltd, liable for GST payable on the sale of assets previously used in your business pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

You, X Pty Ltd, registered for GST on a date. At that time you were trying to sell your intellectual property from a business in which you had ceased trading. You were previously registered for GST but cancelled on a date. You then decided to re-register for GST because you were advised to register for GST before you sold your intellectual property. You were registered for GST at the time of the sale of the assets.

You entered into a Deed of Assignment (“the Deed”), on X to assign your various assets to another company for the sum of $X. The Deed provides that the assets include Trade Marks, Trade Mark Registrations, the Domain Name, the Website content and the Customer contact List (“the IP Assets”).

The Deed provided that the sale price of $X was inclusive of GST. The Deed contained no written indication that the parties intended the transfer to be a GST-free sale of a going concern.

The payments were in two instalments – one of $X on a date and the balance of $X on a date.

At the time of transfer of the IP you were not using it in carrying on your online trading enterprise.

You supplied a copy of a letter showing you had requested the Registrar of Trademarks to transfer your Trade Mark Registration to the transferee.

You did not issue a tax invoice to the transferee nor did they request one.

You have contended that your supply is GST free pursuant to section 38-325 of the GST Act.

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 section 9-40.

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

Reasons for decision

In this reasoning, unless otherwise stated,

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Under section 9-40, you must pay GST on any taxable supply you make.

Section 9-5 of the lists the elements necessary for there to be a taxable supply:

9-5 Taxable supplies

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, or *required to be registered.

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

Applying the above to your situation:

(a) you transferred the IP Assets for consideration of $X;

(b) you transferred the IP Assets in the course or furtherance of an online sales enterprise you carried on;

(c) the supply was connected with the indirect tax zone;

(d) you were registered for GST at the time of supply.

As your supply was not input taxed, it would have been a taxable supply unless it was GST free.

You contend that your supply is GST free pursuant to section 38-325 as a GST free supply of a going concern.

Section 38-325 states:

38-325 Supply of a going concern

(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:

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

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

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free? sets out the Commissioner’s view on what elements are necessary for there to be a GST free supply of a going concern. In particular, paragraphs 17 and 18 respectively state:

17. An arrangement satisfies paragraph 38-325(2)(a) where each of the following elements is present:

● the supplier supplies to the recipient;

● all of the things that are necessary for the continued operation;

● of an enterprise.

18. Paragraph 38-325(2)(b) of the definition also requires two additional elements to be present:

● the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise);

● until the day of the supply.

As there:

● was no agreement in writing that the supply would be a GST-free supply of a going concern, and

● you did not operate the enterprise up until the day of the supply,

● your supply of the IP Assets do not meet the requirements of section 38-325

● your supply of the IP Assets does not meet the requirements of section 38-325

However, as you meet the requirements of section 9-5, and the supply is not GST free nor input taxed, you are liable for GST on the supply of the IP Assets pursuant to section 9-40 of the GST Act.