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Edited version of your written advice
Authorisation Number: 1051504518784
Date of advice: 10 April 2019
Ruling
Subject: GST and the supply of a going concern
Question
Is the sale of your business to one entity and land on which this business is carried to another entity under two interrelated contracts supplies that are GST-free under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No, sale of your business and the sale of land are not supplies that are GST-free under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999.
Additional information
GST is payable on the supplies made under the two contracts.
Relevant facts and circumstances
● You have been conducting a business on land that you own.
● You are registered for GST.
You are currently liaising with two entities that may potentially purchase the business and the land under two separate but interrelated contracts. The contracts are as follows:
● Land contract
● Business contract
The relevant terms of the contracts are as follows:
1. Land contract
The purchaser (land purchaser) of the land is registered for GST.
You and the land purchaser have agreed in writing that the sale of the land is the supply of a going concern.
The sale of the land is contingent upon the successful execution of the Business contract. To this effect, the special conditions of the land contract stipulates the following:
“ this contract and the collateral contract are contingent upon each other. Settlement under this contract is subject to and contingent upon simultaneous settlement of the collateral Contract for sale of Business between the business purchaser and you as the sellers. Settlement will be in accordance with the Business contract and the condition relating to settlement in that contract and the settlement relating to that contract will apply to sale of land contract.
2. Business contract
The purchaser of the business (business purchaser) and you have agreed in writing that the sale of the business is a supply of a going concern.
The business purchaser is registered for GST.
You will be carrying on business until the day of settlement of the Business contract.
You will be supplying everything necessary for the continued operation of your enterprise.
● The purchasers have advised that the sale of business and property must be done as a simultaneous settlement. The buyers are related entities. Accordingly, for the purposes of their finance approval the relevant banks will not settle the two contracts hours or days apart as they require full security to provide the funding.
Relevant legislative provisions
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states the following:
(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:
(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 part of a larger enterprise carried on by the supplier).
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
The Commissioners’ view in regards to a supply of a going concern are provided in goods and services tax ruling, Goods and services tax: when is a 'supply of a going concern' GST-free? (GSTR 2002/5).
At paragraph 19 of GSTR 2002/5 the Commissioner states:
The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise, that is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the 'identified enterprise').
It has been contended that the supplies that you make of the business and land are done under one arrangement and accordingly the Commissioners’ view provided at paragraphs 18A to 18D of GSTR 2002/5 may be applicable to the arrangement that you are contemplating entering into to sell the business and land.
In your case, whilst there may be a single arrangement under which the two contingent contracts are entered into you will be supplying the business and land to two separate recipients as opposed to one recipient as was in the case quoted in paragraphs 18A – 18C of GSTR 2002/5. Accordingly, given our view that you are making two supplies to two recipients, in order for these two supplies to be GST-free, they must both satisfy the requirements of section 38-325 of the GST Act.
Paragraphs 38-325(2)(a) and (b) of the GST Act require the conditions to be satisfied in relation to an ‘identified enterprise’.
Business
The identified enterprise in regards to the sale made under the Business contract is your business. It is our view that the nature of your enterprise is such that it requires access to the land. In your case, on the day of settlement of the Business contract and Land contract there is no provision under the Business contract for the land to be supplied to the business purchaser. The land will be supplied to the land purchaser. Accordingly, it is our view that the supply that you will be making to the business purchaser under the Business contract does not meet paragraph 38-325 (2) (a) of the GST Act as you are not supplying everything necessary to the business purchaser to carry on your enterprise. As such, the supply made under the Business contract is not a supply of a going concern.
Sale of land
Under the Land contract, what you will be supplying is merely the land on which the business was carried (which was an asset of that business). You will not be supplying an enterprise in regards to the land. Accordingly, the supply under the Land contract to the land purchaser is not a supply of a going concern either.
The sale of your business and the land meets the requirements of a taxable supply as defined in section 9-5 of the GST Act. Accordingly, GST is payable on the supplies that you will be making under both the Land contract and the Business contract.
Additional information
At paragraphs 131 to 136 of GSTR 2002/5 the Commissioner provides where supplies made by one entity to two entities (similar to a supplies made by you) can by a going concern.