Edited version of private advice

Authorisation Number: 1051604504042

Date of advice: 4 November 2019

Ruling

Subject: GST-free sale of a going concern

Question 1

Will your supply of the business be a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes

Question 2

Will your supply of the business be a GST-free supply of a going concern under section 38-325 of the GST Act?

Answer 2

Yes

Relevant facts and circumstances

You are registered for GST.

You own and operate an enterprise.

You have provided the following three contracts:

·   the Contract Business Sale; and

·   the Lease in respect to the premises; and

·   the Contract for Commercial Land and Buildings.

Contract Business Sale and Lease

You entered into a contract for the supply of your enterprise.

The buyer is registered for GST.

The purchase price is $x.The contract lists stock in trade of $x. Plant and equipment is listed in a schedule as unencumbered.

You also entered into a contract to lease the premises.

You and the other party have agreed in writing that the supply is of a going concern.

You will supply all of the things necessary for the continued operation of the enterprise.

You will carry on the enterprise until the day of supply.

Leasing enterprise

Contract for Commercial Land and Buildings

You signed a contract for the sale of the premises.

The buyer is registered for GST. The purchase price is $x.

You will carry on a leasing enterprise in respect to the premises from xx.

The settlement date, for the sale of the premises, is expected to be xx, being two business days after completion of Business Sale Contract. The land is sold freehold. The contract states that the sale is of a going concern

You will supply all of the things necessary for the continued operation of the leasing enterprise

You will carry on the leasing enterprise until the day of supply.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-325 (2)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-325(2)(a)

Reasons for decision

Question 1

In this ruling, all legislative references are to the GST Act unless otherwise specified.

The 'supply of a going concern' is GST-free where the requirements of section 38-325 are met.

Subsection 38-325(2) states that a 'supply of a going concern' is a supply under an arrangement under which:

·   the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and

·   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).

You will carry on the enterprise until the day of the supply. However, we need to determine whether you will supply all of the things that are necessary for the continued operation of the enterprise.

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-Free? (GSTR 2002/5) discusses a supply of a going concern for the purposes of section 38-325. GSTR 2002/5 explains when the supply of a going concern is GST-free.

At paragraphs 72 to 130 the ruling provides guidance on the meaning of the phrase 'all of the things that are necessary for the continued operation of an enterprise'. In particular, paragraph 80 of GSTR 2002/5 states:

The supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses.

Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that 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. 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.

You also entered into a contract to lease the premises from which the enterprise will be operated.

Paragraph 131 of GSTR 2002/5 states that paragraph 38-325(2)(a) expressly recognises that the supply under the relevant arrangement of all of the things that are necessary for the continued operation of part of a larger enterprise that is capable of separate independent operation may be a 'supply of a going concern'. Therefore, there may be more than one 'supply of a going concern' when separately identifiable parts of a larger enterprise are supplied. In your case you are making separate sales of the Business enterprise and the real property from which the business is operated.

GSTR 2002/5 at paragraph 133 states:

133. Where the owner of both the business enterprise and the premises grants a lease of the premises in favour of the second entity by the day of the supply of the business enterprise to that second entity, the supplier is supplying the second entity with all of the things that are necessary for the continued operation of the enterprise. The requirement that the premises are supplied to the second entity is met even if the property is subsequently sold to a third entity subject to a lease.

Based on the information provided, you will supply all of the things necessary for the continued operation of the enterprise.

As a result, your supply of the enterprise meets the requirements of subsection 38-325(2). Therefore, you will be making a supply of a going concern under subsection 38-325(2).

Next, consideration needs to be given to whether the requirements of subsection 38-325(1) are satisfied.

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

·   the supply is for consideration; and

·   the recipient is registered or required to be registered for GST; and

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

Based on the facts provided, the three elements in subsection 38-325(1) are satisfied at the time that the supply is made. That is, the supply of the enterprise is for consideration. The recipient, is registered for GST at the time of the supply. You and the recipient have agreed in writing that the supply of the enterprise will be a supply of a going concern.

The requirements of both subsection 38-325(1) and (2) are satisfied. Accordingly, your sale of the enterprise is a GST-free supply of a going concern.

Question 2

GSTR 2002/5 states in paragraphs 107A and 134 that:

107A. An identified enterprise may consist solely of the leasing of a property to a tenant or tenants. Such an activity is an enterprise under paragraph 9-20(1)(c). This is the case even though the leasing of the property may be carried on as part of the supplier's broader enterprise. Where the identified enterprise consists solely of leasing a property, management and services contracts related to the lease are not things necessary for the continued operation of that enterprise. That is, where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenant or tenants is all that is required to satisfy paragraph 38-325(2)(a).

134. Similarly, the supply of the real property to the third entity on a later day that is subject to a lease to a second entity in the circumstances described in the preceding paragraph, may also be the 'supply of a going concern'. This is because an enterprise of leasing the relevant property is conducted by the supplier up to the day of the supply, albeit for a brief period of time. The supplier, being the owner of both the business and the real property, is making two supplies, each of which is capable of being the 'supply of a going concern'.

Based on the information provided, you will supply all of the things that are necessary for the continued operation of the leasing enterprise. You will also carry on the leasing enterprise until the day of the supply.

As a result, your supply of the leasing enterprise meets the requirements of subsection 38-325(2). Therefore, you will be making a supply of a going concern under subsection 38-325(2).

Next, consideration needs to be given to whether the requirements of subsection 38-325(1) are satisfied.

Based on the facts provided, the three elements in subsection 38-325(1) are satisfied at the time that the supply is made. That is, the supply of the leasing enterprise is for consideration. The recipient, is registered for GST at the time of the supply. You and the recipient have agreed in writing that the supply of the enterprise will be a supply of a going concern.

The requirements of both subsection 38-325(1) and (2) are satisfied. Accordingly, your sale of the leasing enterprise is a GST-free supply of a going concern.