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Edited version of your written advice
Authorisation Number: 1051455864915
Date of advice: 16 November 2018
Ruling
Subject: GST and consideration
Question 1
Is the transfer of your enterprise (the Enterprise) to the Buyer for consideration?
Answer
No.
Question 2
If ‘yes’ to question 1, is the transfer of the Enterprise to the Buyer a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999?
Answer
Not applicable.
Relevant facts and circumstances
You are carrying on a number of enterprises in Australia. You have stopped trading in respect of one the enterprises (the Enterprise) and are currently only managing the liabilities that arise as a result of your previous trading activities.
You have entered into an Insurance Agreement with a specified entity (the insurer) to insure the historic and future liabilities of the Enterprise. You have paid a specified amount as a premium to the insurer.
You are proposing to transfer the Assets and Liabilities of the Enterprise to the Buyer pursuant to the Transfer Agreement. The Buyer has agreed to assume the Liabilities of the Enterprise.
You have provided copies of the Transfer Agreement and other related agreements.
The Transfer Agreement provides that the Assets of the Enterprise include the Insurance Agreement and the other related agreements.
The Assets of the Enterprise are only relevant for the management of the Liabilities.
Under the Transfer Agreement the Buyer does not provide any other consideration for the transfer apart from agreeing to the assumption of the Liabilities.
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 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
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
Summary
You are not supplying the Enterprise to the Buyer for consideration. Therefore the supply is not subject to GST.
Detailed reasoning
Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.
Section 9-5 of the GST Act defines a taxable supply. It states:
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.
(* denotes a term defined in section 195-1 of the GST Act)
Paragraph 9-5(a) of the GST Act requires that the supply is for consideration. Supply is defined in section 9-10 of the GST Act to include any supply whatsoever and intends to encompass supplies as widely as possible.
Consideration also defined widely in the GST Act as being any consideration in connection with a supply (section 195-1 and subsection 9-15(1) of the GST Act). Further, section 9-75 of the GST Act recognises that consideration for a supply can be monetary or non-monetary.
As expressed in Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) our view is that consideration as a ‘payment’ must have economic value and independent identity and must be provided as compensation for the making of the supply as explained in paragraphs 80 to 85 of GSTR 2001/6. Paragraphs 81 to 83 of GSTR 2001/6 state:
81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.
82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.
83. Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular, the true character of the transaction may characterise the payment as a condition of the contract rather than the provision of non-monetary consideration. For example, in many cases, agreeing to enter into a contract to receive a supply for a specific period of time is not non-monetary consideration for that supply.
A superficial analysis of the Transfer Agreement suggests that the Buyer’s assumption of the Liabilities is for consideration of the Assets including the Insurance Agreement. However, in examining the true character of the Transfer Agreement and the related transactions entered into, what is being supplied is an enterprise which only involves liabilities and their management.
The transfer of the Enterprise including the assumption of the Liabilities and Assets is a supply of an enterprise and of a single thing. The Assets are relevant for the management of the Liabilities and do not have an economic value or independent identity apart from the particular arrangement. The assumption of the Liabilities by the Buyer under the Transferring Agreement cannot be said to be consideration for the Assets. The transactions relating to the transfer of the Liabilities and Assets of the Enterprise are properly characterised as terms and conditions of the overall arrangement in these specific circumstances.
As such, the requirements of paragraph 9-5(a) of the GST Act are not met as the Buyer is not providing consideration for the supply of the Enterprise. The supply of the Enterprise by you to the Buyer therefore is not a taxable supply under section 9-5 of the GST Act.
For a supply to be a supply of a going concern, paragraph 38-325(1)(a) of the GST Act requires that ‘the supply is for consideration’. As the supply of the Enterprise is not for consideration this provision is not relevant for consideration.