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Edited version of private advice
Authorisation Number: 1051676824693
Date of advice: 15 May 2020
Ruling
Subject: GST and supply of a going concern
Question
Is the supply of the Assets under the Asset Sale Agreement a supply of a going concern made by Entity A in accordance with section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes, the supply of the Assets under the Asset Sale Agreement is a GST-free supply of a going concern made by Entity A in accordance with section 38-325 of the GST Act.
Relevant facts and circumstances
Entity A and B are both registered for GST purposes.
Entity A is the owner and operator of a Business.
Entity A and B entered into an asset sale agreement (the Agreement) to sell part of the assets of the broader Business to Entity B.
The Assets are listed in the Agreement.
You advised in the private ruling application that there are no other assets that are used in the relevant part of the Business which are not being sold or provided to Entity B.
The purchase price is exclusive of GST.
Contractors are engaged by Entity A to carry out much of the activities associated with the relevant part of the Business.
The completion date for the Agreement is to be 20 business days after the last condition precedent is fulfilled or satisfied.
Under the Agreement, Entity A and Entity B agree that the supply of the Assets constitutes a GST-free supply of a going concern in accordance with section 38-325 of the GST Act. Entity A warrants that it will carry on the enterprise until completion.
Reasons for decision
Section 38-325 provides when the supply of a going concern is GST-free, as follows:
(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 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).
Goods and Services Tax Ruling: Goods and services tax: when is a 'supply of a going concern' GST- free explains what is a 'supply of a going concern' for the purposes of section 38-325. It also explains when the 'supply of a going concern' is GST-free for the purposes of that section. It is necessary to consider subsection 38-325(2) first to see if there is a supply of a going concern.
Subsection 38-325(2)
Identified enterprise
Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2).
Paragraph 30 of GSTR 2002/5 explains that where the enterprise identified for the purpose of subsection 38-325(2) forms part of a larger enterprise, a supply is a 'supply of a going concern' when all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise are supplied.
Paragraph 37 of GSTR 2002/5 provides the following elements are indicators that part of an enterprise may be carried on 'in the form of' a business:
· a degree of autonomy;
· a separate management structure;
· a system of internal user charging;
· a separate budget; and
· agreements with internal service providers or external customers.
Overall, it is accepted that the Assets are operated by Entity A 'in the form of' a business and is the identified enterprise for the purposes of subsection 38-325(2).
Supply of all things necessary for the continued operation of an enterprise
Paragraph 38-328(2)(a) requires that the supplier supplies to the recipient all of the things that are necessary for the continued operation of the enterprise.
Paragraph 75 of GSTR 2002/5 identifies two elements that are essential for the continued operation of an enterprise:
· the assets necessary for the continued operation of the enterprise
· the operating structure and process of the enterprise.
It is accepted that Entity A is supplying all things necessary for the continued operation of the identified enterprise to Entity B under the Agreement.
Entity A warrants that it will continue to operate the identified enterprise until the date of completion.
As such, the requirements of subsection 38-325(2) are satisfied and the supply made by Entity A to Entity B will be the supply of a going concern.
Subsection 38-325(1)
The supply of the Assets is for consideration and both entities have agreed in writing that the supply is a going concern. Entity B is registered for GST.
The requirements of subsection 38-325(1) are also satisfied.
Therefore, Entity A will be making a GST-free supply of a going concern under the Agreement. The list of Assets in the Agreement constitute the sale of a GST-free going concern.