Edited version of your private ruling

Authorisation Number: 1051787526433

Date of advice: 4 December 2020

Ruling

Subject: Supply of a part enterprise as a going concern

Question 1

Is the sale of a part interest in all the assets of an enterprise a GST-free supply of a going concern under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

Whether agreements that will be entered in conjunction with the sale of the assets form part of the arrangement for the supply of a GST-free going concern?

Answer

Yes.

Relevant facts and circumstances

Supplier Entity is selling a part interest in all the assets of its enterprise including assigning the relevant interests in on-going supply agreements with third parties to the buyer.

The sale agreement provides for consideration. It also includes a clause that the Supplier Entity and the buyer have agreed that the supply will be a GST-free supply of a going concern.

Under the arrangement agreed with the buyer, the Supplier Entity and the buyer will enter into a number of agreements in conjunction with sale agreement. These agreements provide how they will operate the enterprise together following the sale. These agreements will be entered into prior or on the day of supply.

Supplier Entity will carry on the enterprise including the part that is subject to the sale until the day of supply.

Supplier Entity and the buyer are both registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J

Reasons for decision

Subsection 38-325(2) of the GST Act defines what is a supply of a going concern and provides that it 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 (where or not as a part of a larger enterprise carried on by the supplier).

Subsection 38-325(1) of the GST Act provides that a 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.

Goods and Services Tax Ruling GSTR 2002/5: when is a 'supply of a going concern' GST-free? provides our view on the application of section 38-325 of the GST Act. GSTR 2002/5 affirms that 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.

The enterprise that is the subject of a GST-free supply of going concern includes a supply of a separate or divisible part of a larger enterprise provided it is operating and capable of operating separately and independently.[1] Subsection 38-325(2) of the GST Act specifically provides that a supply of going concern may include "a part of a larger enterprise carried by the supplier".

However the part of the enterprise that is supplied must be an "identifiable enterprise". Paragraph 29A of GSTR 2002/5 cited the conclusion by Justice Greenwood in Aurora Developments Pty Ltd v. Commissioner of Taxation (2011) 192 FCR 519 to support this approach. The ruling referred to his judgement relating to subsection 38-325(2) of the GST Act who states:

...can only operate in circumstances where an 'enterprise' has been identified comprised of particular activities (or a particular activity). An enterprise has content not just an objective.

...

Until the content of the enterprise is isolated, it is not possible to say whether all of the things necessary for its continued operation have been supplied. Section 38-325(2)(a) calls for the identification of an enterprise the subject of the supply and s 38-325(b) calls for the supplier to carry on that enterprise until the day of the supply.^3B [2]

Where the enterprise identified for the purposes of subsection 38-325(2) of the GST Act forms part of a larger enterprise, the supply of that part is "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.

Application to the facts

Is there a supply of a going concern?

The supply under the arrangement includes the sale agreement for the sale of the assets and assignment of the supply contracts with the third party. It also includes agreements entered into with the buyer that sets out how the enterprise will be carried on following the supply.

The arrangement between Supplier Entity and the buyer meets the requirements of a 'supply of a going concern' as defined in subsection 38-325(2) of the GST Act. Under the sale agreement, Supplier Entity supplies a part interest in all the assets as well as assigning the relevant interests in the third-party supply agreements to the buyer. Although what is supplied under the sale agreement forms only a part of a larger enterprise, the part is capable being characterised as a separate identifiable enterprise that can be carried on as independent enterprise following the supply if the buyer so chooses.

In addition, the sale agreement providing the partial interest in the assets and assigning the relevant interest in the third-party supply agreements, supplies to the buyer all of the things necessary to continue the operation of that part of the enterprise as an independent enterprise.

Finally, paragraph 38-325(2)(b) of the GST Act is satisfied as Supplier Entity will carry on the relevant enterprise until the day of supply of the enterprise.

Is the supply of going concern GST-free?

The supply of going concern by Supplier Entity meets all the requirements for the supply to be GST-free under subsection 38-325(1) of the GST Act. That is,

•        the supply is for consideration under the sale agreement;

•        the buyer is registered for GST; and

•        the sale agreement provides that the supply will be a GST-free supply of a going concern for the purposes of section 38-325 of the GST Act.

[1] See paragraphs 16 and 131 of GSTR 2002/5.

[2] See paragraph 29A of GSTR 2002/5.