Edited version of your written advice

Authorisation Number: 1051409874418

Date of advice: 6 August 2018

Ruling

Subject: GST-free supply of a Going concern

Question

Is the supply by you under the Sale Agreement a GST-free going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply by you under the Sale Agreement is a supply of a GST-free going concern under section 38-325 of the GST Act.

Relevant facts and circumstances

● You is registered for GST and is a multi-faceted company

● You operate activities.

● You have advised the lifecycle of an enterprise.

● An extensive amount of analysis and investment is involved in developing a project and, as such, it will take a number of years before an enterprise will produce a saleable commodity.

● You hold several leases.

● Your activities are managed on a day to day basis by site employees.

● Activities not adjacent to the existing operations are managed as a separate enterprise by the group situated in head office.

● Activities performed and accounted for separately to those on other leases and licences.

● The program was approved by the Department that applied to the period.

● In the Sale Agreement you agreed to sell the Interest to the purchaser and the purchaser agrees to purchase the Interest.

● The Interest is defined in the Agreement as 100% interest.

● The Authority is defined as the authority issued in satisfaction of the Condition Precedent in in respect of and any replacement or renewal of that authority.

● The Contract as defined in the Agreement is the Plan.

The information is defined as

● All information (including confidential information) available, including all notes and other relevant information and data in whatever form which is in the possession or control of the Seller, and including the information in the Material, but excluding Associated Rights.

● The Material includes among other things all documentation contained in the Room as recorded at that time.

● The Records are defined as Records and the Records;

● The Records are defined as ‘The records in possession or control of the Seller and relating exclusively to the Interest, excluding Information and Rights’.

● The Records are defined as ‘A copy of the records in the possession or control of the Seller and relating exclusively to the Area, excluding Information and Rights.

● The Area is defined as ‘that part as described in the annexure to the Agreement.

● The Rights are defined as;

(a) All intellectual property rights that the Seller holds pertaining to the Information including rights subsisting under copyright, design, trade mark, patent or similar legislation, together with rights recognised at common law; and

(b) The benefit of any contracts (whether written or oral) between the Seller and the provider of the Information for production of that information, including any actual or implied warranties as to the accuracy of that information

● In the Agreement is defined as granted under the Area is that part described as on the plan in the annexure to the Agreement.

● In the Agreement you have agreed to sell the area, by granting the exclusive right over the Area, this agreement covers:

● The agreement which covers the transfer of the Interest of the Assignor to the Assignee.

● The Schedules cover;

● Warrantees and the Deed.

● The Deed

● The Security

● The area

● The Deed and

● The Priority

● According to the Deed you and the purchaser agree to the transfer of the rights, title and obligations under The Plan.

● You advised that the associated rights comprise the right within an area. Pursuant to the agreement, any activities they performed were reported by you and are used to satisfy your reporting obligations, the purchaser was required to fund the activities and was entitled to the information generated from the activities it funded.

● You believe that there is both the physical capability and the operating structure being supplied.

● The physical capability.

● The existing operating structure comprises

● The knowledge – the intellectual property created to date in respect of the enterprise

● The ability – the regulatory approvals and authorisations required to further progress the enterprise, and

● The records – the accounts and records maintained in respect of the enterprise.

● You believe that the combination of the assets and activities associated with the conduct of activities in relation to the Interest is an enterprise.

● the purchaser is registered for GST.

● You and the purchaser have agreed in the Agreement that the supply is a going concern.

● In the Agreement the purchase price for the supply is excluding GST payable in tranches.

● You will continue to carry on the activities listed in Section C: Private Ruling Application, in relation to the identified enterprise until the day of supply (Completion date) and of the Agreement covers the Obligations at Completion where you are required to ensure your interests in the Interest are effectively transferred on the completion date

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

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

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

Reasons for decision

Section 38-325 of the GST Act

Subsection 38-325(1) of the GST Act provides that a supply of a ‘going concern’ is GST-free if:

(a) the supply is for consideration

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

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

On the facts provided by you:

● the Sale Interest will be supplied for consideration (being the purchase price set out in the Agreement)

● the recipient is registered for GST, and

● you and the recipient agree in writing that the supply of the Interest is the supply of a going concern.

On that basis, the elements of subsection 38-325(1) of the GST Act will be satisfied upon execution and completion of the sale process under each of the Agreements.

Under subsection 38-325(2) of the GST Act, 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).

The supply of the Interest will be GST-free provided that the arrangement between you is one that constitutes a going concern under subsection 38-325(2) of the GST Act.

Supply under an arrangement

Although the word ‘arrangement’ is not defined in the GST Act, GSTR 2002/5 explains at paragraph 19 that the term supply under an arrangement includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement provided the things supplied relate to the identified enterprise. The supply of the Interest under the Agreement will be a supply under an arrangement.

Identified Enterprise

Subsection 38-325(2) of the GST Act can only operate in circumstances where an enterprise has been identified as comprising particular activities that relate to that identified enterprise (paragraph 21 of GSTR 2002/5).

Once an enterprise is identified, a supply of a going concern arises if an arrangement is shown to subsist under which you supply to a buyer all of the things that are necessary for the continued operation of that enterprise.

Carrying on an enterprise includes ‘doing anything in the course of the commencement or termination of the enterprise’. By section 9-20 of the GST Act, an enterprise can consist of a single activity or series of activities undertaken in the form of a business or in the form of an adventure in the nature of trade or on a regular and continuous basis in the form of a lease, licence or other grant of an interest in property.

Paragraph 30 of GSTR 2002/5 explains:

Where the enterprise identified for the purposes of subsection 38-325(2) forms part of a larger enterprise, a supply is a ‘supply of a going concern’ when all the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied.

Paragraph 32 of GSTR 2002/5 further explains:

A supply of all the things necessary for the continued operation of an activity which is part of an enterprise cannot be a ‘supply of a going concern’ unless the conduct of the activity is itself an ‘enterprise’ as defined in section 9-20.

The Agreement is for a 100% interest in:

● The Authority;

● The Contract;

● The information;

● The Records; and

● The Rights.

We have been advised that the lifecycle of an enterprise typically involves a number of phases and it will take a number of years before an enterprise will produce.

On the facts provided, we accept that the identified enterprise being carried on by you, for the purposes of subsection 38-325(2) of the GST in its phase.

Things necessary for the continued operation of an enterprise

The ‘things which are necessary for the continued operation of an enterprise’ will depend on the nature of the enterprise carried on and the core attributes of that enterprise (paragraph 72 of GSTR 2002/5). A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing (paragraph 73 of GSTR 2002/5). A supplier will only be treated as having supplied all things necessary for the purposes of subsection 38-325(2) of the GST Act if the purchaser is put in a position on the day of the supply to, if it chooses, continue to operate the identified enterprise.

Paragraph 75 of GSTR 2002/5 explains that 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 ongoing advertising and promotion.

It is clear from paragraph 75 of GSTR 2002/5 that what is transferred must be more than the business assets of an identified enterprise. The provision or a percentage of the rights without more is unlikely to be regarded as a supply of a going concern.

You have stated that you will be supplying both the assets and the operating structure, the physical capability and the existing operating structure comprising of:

● The knowledge

● The ability and

● The records.

Based on the information provided, you will supply the two elements essential for the continued operation of the identified enterprise; being the assets and operating structure. Accordingly, the requirement in paragraph 38-325(2)(a) of the GST Act will be satisfied.

Supplier carries on enterprise until day of supply

GSTR 2002/5, at paragraphs 141 to 165, provide guidance on the meaning of 'supplier carries on the enterprise until the day of supply' for the purposes of paragraph 38-325(2)(b) of the GST Act.

Paragraph 150 of GSTR 2002/5 explains that a supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being carried on, but is also operating. All of the activities of the enterprise must be active and operating on the day of the supply.

The enterprise must be carried on by the supplier which may do so itself or have another entity carry on the enterprise on its behalf.

Paragraph 161 of GSTR 2002/5 further explains that the day of the supply occurs when the supplier has done everything to satisfy the obligations under the contract or arrangement governing the supply and the recipient assumes effective control and possession of all things that are necessary for the continued operation of the enterprise.

You submitted in Section C: Private Ruling Application that you will continue to carry on the activities listed in the facts in relation to the identified enterprise until the day of supply (Completion date).’ Also clause 6.2 of the Agreement covers the Obligations at Completion where you are required to ensure your interests in the Interest are effectively transferred on the completion date.

Therefore, as all the requirements of subsection 38-325(2) and subsection 38-325(1) of the GST Act will be satisfied, the supply, by you of the Interest as defined in the Agreement, will be the supply of a GST-free going concern.