Edited version of private advice

Authorisation Number: 1051624264210

Date of advice: 31 January 2020

Ruling

Subject: GST-free supply of going concern

Question

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

Advice/Answer

Yes, the sale of your franchise will be a GST-free sale of going concern as all of the conditions in section 38-325 of the GST Act are satisfied as follows:

Paragraph 38-325(2)(a) of the GST

You are an identified enterprise that forms part of a larger enterprise. As your Franchise agreement allows you to transfer or sale of the franchise by notifying the franchisor.

You will be providing:

• The business's clients and customer lists including files (hard copy and soft copy)
• Advertising material for the business
• List of current suppliers for the business
• Technical Know-how for the business, systems and operating manuals and the Business name
• The right to use the intellectual property including copyright owned by the franchisor
• Supply of Software licences & Agencies
• The Company page and the Franchisors Website
• The franchise's Facebook page
• Restrictive Covenant

The franchise business is a fully mobile business. Under your Franchise Agreement, the approved franchise vehicle must be used in the business and this vehicle must be included as a part of the sale. You have advised that you will be including the approved franchise vehicle in the sale of the franchise which is essential to the continued operation of the enterprise.

You will also be including the franchises assets in the sale, such as the business's computer and stationery, as well as transferring the franchise's mobile phone number to the purchaser as part of the sale which is also things necessary for the continued operation of the franchise.

Therefore, we consider that all of the things necessary for the continued operation of the franchise will be supplied under the arrangement as required by paragraph 38-325(2)(a) of the GST Act.

Paragraph 38-325(2)(b) of the GST Act

The requirement of paragraph 38-325(2)(b) of the GST Act will also be met as you will carry on the franchise until the completion of the sale.

Paragraph 38-325(1)(a) of the GST Act

The supply of the franchise will be made for consideration. Hence, the requirement of paragraph 38-325(1)(a) of the GST Act will be met.

Paragraph 38-325(1)(b) of the GST Act

You have advised that the purchaser will be registered for GST at the time of the supply. Hence, the requirement of paragraph 38-325(1)(b) of the GST Act will be satisfied.

Paragraph 38-325(1)(c) the GST Act

You have also advised that you and the purchaser will agree in writing that the supply of the franchise will be a supply of a going concern for the purposes of the GST Act. Hence, the requirement of paragraph 38-325(1)(c) of the GST Act will be satisfied.

Relevant facts and circumstances

You are registered for GST.

You are the franchisee of a business which is part of a larger enterprise being carried out by you. It is a separate branch for GST purposes which forms part of the consolidated result for tax purposes.

The franchise is to provide services within the Territory specified in your Franchise Agreement using the franchises system. It is a fully mobile business where services are performed at the client's premises.

The Business is to sell to the purchaser as a pre-established franchise with a designated territory defined by the Franchise Agreement. This sale will be by way of a transfer of the franchise and all rights attributable to the franchise agreement, employing the surrender of our rights under the deal in favour of the purchaser.

Under your Franchise Agreement, you must only use the storage containers that the Franchisor provides for storage of client documents and you must advise the Franchisor of the mobile phone number used as the principal point of contact for clients and acknowledge and agree to transfer or procure the transfer of that number to the Franchisor upon termination or expiration of the Franchise Agreement.

According to your Franchise Agreement you must not, without the prior written consent of the Franchisor, other than in cases of emergency, use in the franchised business any vehicle other than the approved franchise vehicle.

Your Franchise Agreement allows for you to transfer or sell the business provided you notify the Franchisor and give them first option to purchase the franchise.

You have advised that, the franchise is to be sold with the purchaser to also receive:

• The business's clients and customer lists including files (hard copy and soft copy)
• Advertising material for the business
• List of current suppliers for the business
• Technical Know-how for the business, systems and operating manuals and the Business name
• The right to use the intellectual property including copyright owned by the Franchisor
• Supply of Software licences & Agencies
• The Company page and the Franchisors Website
• The franchise's Facebook page
• Restrictive Covenant
• The business vehicle and assets of the business such as computer, stationery and shoeboxes

You have also advised that you will also transfer the mobile phone number of the franchise to the purchaser.

You will agree in writing with the purchaser that the sale will be a going concern.

You will carry on the enterprise until the day of the supply and the purchaser will be registered for GST at the time of sale. As per the Special Conditions of the draft Contract for the sale of the business, you covenant that, for date hereof until the Completion Date, you should carry on the business in the ordinary and normal course and shall use your best endeavours and take all commercially reasonable actions to preserve the goodwill of the business, and the supplies and customers of the business.

Relevant legislative provisions

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

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

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

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999