| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1051405707612
Date of advice: 26 July 2018
Ruling
Subject: GST-free going concern provisions.
Question
Was the sale of assets to a buyer the sale of a GST-free going concern?
Answer
No. The sale of assets to a buyer was not the sale of a GST-free going concern.
The sale of the assets was a taxable supply.
Relevant facts and circumstances
The (seller) has closed their store permanently and has retired.
The seller is registered for GST.
The buyer is registered for GST.
The seller has continued on the enterprise up until the day of the supply.
The sale of the assets is for consideration.
The buyer and the seller have a written agreement where the parties agree that the supply of the assets constitutes the supply of a going concern.
The seller’s enterprise was conducted from premises and those premises have closed.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 sections 9-5 & 38-325
Reasons for decision
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 three conditions above have been satisfied.
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).
In this case the seller has continued on the enterprise up until the day of the supply. Paragraph 38-325(2)(b) of the GST Act has been fulfilled.
All of the things necessary
For the seller to make a supply of a GST-free going concern it needs to be determined whether the seller supplied to the buyer all of the things necessary for the continued operation of the identified enterprise under paragraph 38-325(2)(a) of the GST Act.
In this case the seller’s enterprise was conducted from premises and those premises have closed.
GSTR 2002/5 considers the meaning of the phrase all of the things that are necessary for the continued operation of an enterprise. In particular, paragraphs 90 and 91 of GSTR 2002/5 address the matter of the supply of premises in relation to the continued operation of an enterprise. These paragraphs provide that where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied.
Paragraph 25 of GSTR 2002/5 has been reproduced below:
25. Where the thing supplied is merely an asset used in an activity that is carried on as an enterprise, the supply of that asset is not the 'supply of a «going» «concern'».
In this case the facts provided indicate that the buyer’s premises have closed and therefore those were not supplied to the buyer. Therefore, as explained above, the seller’s supply was a supply of assets and not one of a GST-free going concern.
Taxable supply
Section 9-5 of the GST Act provides that an entity makes a taxable supply if the supply is for consideration, the supply is made in the course or furtherance of an enterprise that the entity carries on, the supply is connected with the indirect tax zone (Australia) and the entity is registered, or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The supply of business assets is neither GST-free nor input taxed.
According to the facts provided the seller made the supply for consideration, in the course or furtherance of an enterprise that the seller carried on, the supply is connected with Australia and the seller was registered at the time of the supply.
Therefore, the seller made a taxable supply and needs to remit 1/11 of whatever consideration it received on that supply as GST.