Edited version of private advice

Authorisation Number: 1051890855896

Date of advice: 1 September 2021

Ruling

Subject: GST and supply of a going concern

Question

Was your supply of the x manufacturing business, carried out at x, to x 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

Yes

Relevant facts and circumstances

X (you) was formerly x. You are registered for goods and services tax (GST).

You operated a x manufacturing enterprise at x. You leased the premises from x. The then existing lease between x and you applied from x to x.

On x you entered into a contract (the Contract) for the supply of your x manufacturing enterprise. You provided us with a copy of the Contract. The date of settlement for your supply of the x manufacturing enterprise was x. You supplied the x manufacturing enterprise for consideration.

The buyer, x, was registered for GST on x.

The purchase price was x. An additional amount of x was paid for the sale of trading stock to x. X employed your x remaining employees.

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

You supplied all of the things necessary for the continued operation of the x manufacturing enterprise to x. On settlement, x became the lessee under the then existing lease between x and you.

You assigned the lease to x in accordance with clause x of the Contract.

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)

Reasons for decision

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).

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.

Paragraph 58 of GSTR 2002/5 discusses where a supplier may supply a lease either by assignment or by surrendering the lease and facilitating the entry by the recipient into a lease or agreement to lease the same premises by the day of supply. You assigned your lease of the premises to x.

Based on the information provided, you supplied all of the things necessary for the continued operation of the paint manufacturing enterprise to x.

You carried on the x manufacturing enterprise until the day of the supply.

As a result, your supply of the x manufacturing 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 x manufacturing enterprise was for consideration. X, the recipient, was registered for GST at the time of the supply. You and x 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 x manufacturing enterprise was a GST-free supply of a going concern.