Edited version of private advice

Authorisation Number: 1051946469188

Date of advice: 29 August 2022

Ruling

Subject: GST and sale of a going concern

Question

Was the supply, made by Entity A, of its Sale Interest pursuant to (and as defined in) the Sale and Purchase Agreement ("the SPA"), a GST-free supply of a going concern under Subdivision 38-J of the A New Tax System (Goods and Services) Act 1999 (the GST Act)?

Answer

Yes, the supply made by Entity A of its Sale Interest pursuant to (and as defined in) the SPA was a GST-free supply of a going concern under Subdivision 38-J of the GST Act. This is because the Commissioner considers the supply satisfied all the requirements specified in section 38-325 of the GST Act. Therefore, GST was not payable on the supply.

This ruling applies for the following period:

DD Month YYYY to DD Month YYYY

The scheme commences on:

DD Month YYYY

Relevant facts and circumstances

You,

Entity A,

Entity B,

Entity C, and

Entity D

applied for this private ruling.

Your GST registration and GST group relationship status are summarised in Table 1 below.

Documents provided for this ruling include the following, summarised in the Table 2 below.

Entity A was a participant in the AB Joint Venture (ABJV) operated by Entity D, with Entity B being the other participant.

At the time of the Sale and Purchase Agreement, DDMMYYYY, ABJV was governed by the Deed of Amendment and Restatement (Joint Operating Agreement - AB Joint Venture) executed on DDMMYYYY between Entity A, Entity B and Entity D (ABJV JOA).

(i)         ABJV JOA replaced the original deed that established the joint venture which was executed on DD MMYYYY.

(ii)        ABJV JOA was further amended and restated on DDMMYYYY which is referred to as the 'Completion JOA'.

Clause # of the ABJV sets out the participating interests of Entity A and Entity B as #% and #% respectively. That is, Entity B held a #% interest in the ABJV.

The purpose and scope of the ABJV is set out at clause # of the Completion JOA. At a high level the purpose is to conduct the Project. The Project is defined in the Completion JOA to be:

(a)          x1 project activities

(b)          x2 project activities

(c)           x3 project activities; and

(d)          x4 project activities.

At clause # of the ABJV JOA, entered into on DDMMYYYY, the participants agreed to form a GST joint venture and appoint Entity D to be the GST joint venture operator. Entity D was to notify the Commissioner of the formation of the GST joint venture. The Commissioner was notified of the formation of the ABJV, and the Commissioner advised that the GST joint venture was formed as from DDMMYYYY.

AA Pty Ltd was appointed to perform a specified activity as announced on DDMMYYYY.

In MMYYYY, BB Pty Ltd issued a specified notice to AA Pty Ltd for a specified scope of work. The notice enabled AA Pty Ltd to place orders for materials and equipment, progress engineering and commence early works for the temporary construction of an accommodation village in LL location.

On DDMMYYY, the Sale and Purchase Agreement was executed between:

Entity A (Seller),

Entity C (Seller Guarantor), and

Buyer Pty Ltd in its capacity as trustee of the Buyer Trust (Buyer)

for the sale and purchase of the Sale Interest (the SPA).

Sale Interest is defined in the SPA to mean:

(a) the AB Sale Interest;

(b) to the extent not part of the AB Sale Interest, the Project Agreements to the extent of the Percentage Interest;

(c) to the extent not part of the AB Sale Interest, the specified Contracts to the extent of the Percentage Interest; and

(d) to the extent not part of the AB Sale Interest, the benefit of any specified rights to the extent of the Percentage Interest.

Under the sale transaction, the Participating Interest of Entity A in the ABJV was transferred to the Buyer, Buyer Pty Ltd in its capacity as trustee of Buyer Trust (an entity that is unrelated to the Seller, Entity A).

The Trustee for Buyer Trust of ABN # is registered for GST from DDMMYYYY, as indicated on the Australian Business Register (ABR) website which is public information.

The transaction and the SPA were summarised in a specified BB Pty Ltd announcement dated DDMMYYYY:

<contents of announcement>

On DDMMYYYY the AB Joint Venture announced its final investment decision, contemporaneously with the final investment decision for the XX development.

With the final investment decision for XX development and AB being announced on DDMMYYYY, the additional amount of construction capital expenditure referred to in the specified announcement was calculated to be $.

Clause # of the SPA states, in part:

(i)         the Seller and Buyer agree that the sale of the Sale Interest under or as contemplated by the SPA constitutes the supply of a going concern in accordance with Subdivision 38-J of the GST Act. (clause #)

(ii) the supply is for consideration (clause #)

(iii)       the Buyer warrants and represents that it is registered or is required prior to Completion to be registered under the GST Act (clause #)

(iv)       Seller carries on and will carry on the business constituting the Sale Interest until the day of supply (clause #)

Subject to satisfaction, or wavier (clause #) of the conditions precedent (clause #), on the Completion Date, Entity A supplies the Sale Interest to the Buyer for a consideration of $ (clauses # and #) and the ZA Amount (clauses # and #).

The sale transaction was completed on DDMMYYYY (Completion date). BB Pty Ltd specified announcement of DDMMYYYY includes:

<contents of announcement>

The SPA had an effective date of DDMMYYYY. Clause # provides a mechanism for consideration in respect of the period from DDMMYYYY to the Completion Date. Essentially the Buyer will pay its participating interest share of the costs incurred after the Effective Date.

The Completion JOA, like the ABJV JOA, has the standard requirement that the participants contribute in proportion to their Participating Interests (refer clause # of the Completion JOA and clause # in Part I of the specified procedure in Schedule 1 to the Completion JOA).

Completion (as defined in the SPA) is governed by clause # of the SPA. Clause # sets out the obligations of the Buyer and the Seller Entity A at completion.

Buyer's obligations at Completion

Clause # of the SPA outlines the Buyer's obligations at Completion and includes the following:

At Completion, Buyer will:

(a)          pay the Purchase Price;

(b)          pay the ZEA Amount calculated in accordance with clause #.

ZEA Amount means the amount determined in accordance with clause # and as set out in the ZES Statement, as such amount may be adjusted in the Final ZE Statement.

Clause # of the SPA outlines the ZE Amount and includes the following:

(a)    At Completion, Buyer must pay Seller the ZEA Amount calculated in accordance with clause #.

(b) The ZEA Amount will be an amount calculated as follows:

(i) add any ZE on or after the Effective Date;

(ii) deduct any ZE on or after the Effective Date that has been paid after the Effective Date, but which was incurred prior to the Effective Date; and

(iii) add an interest amount calculated by escalating any net ZE on or after the Effective Date added under clause # and which is not deducted under clause # at the Interest Rate, compounded daily, on and from the date of payment up to and including the Completion Date.

Seller's obligations at Completion

Clause # of the SPA outlines that at Completion, the Seller will deliver to Buyer duly executed documents as listed below, including the JOA Assumption Document executed on DDMMYYYY between Entity A (Assignor), Buyer Pty Ltd (Assignee) and Entity B (continuing Participant).

Clause # of the SPA provides:

At Completion, Seller will:

(a)          deliver to Buyer, duly executed originals or electronically executed counterparts of:

< a list of specified documents>

(b)          (b) deliver to Buyer a USB or hard drive containing copies of the Due Diligence Information provided to Buyer in the BB Data Room.

Clause # of the SPA provides that all Project Agreements to which Seller is a party (Assignment Project Agreements) are, to the extent of the Percentage Interest, to be assigned by Seller to Buyer at Completion and under the terms of the applicable specified Document for the relevant Assignment Project Agreement.

Under clause # of the SPA, in relation to each Assignment Project Agreement which is to be assigned to Buyer at Completion:

Seller and Buyer shall enter into an Assignment and Assumption Document with the other parties to the Assignment Project Agreement under which:

a.            Buyer becomes a party to the Assignment Project Agreement to the extent of the interest conferred by the Percentage Interest;

b.            Buyer assumes all obligations and liabilities under the Assignment Project Agreement to the extent of the interest conferred by the Percentage Interest; and

c.            Seller is released from further performance of the Assignment Project Agreement to the extent of the interest conferred by the Percentage Interest;

JOA Assumption Document

The JOA Assumption Document was executed on DDMMYYYY between Entity A (Assignor), Buyer Pty Ltd in its capacity as trustee of Buyer Trust (Assignee), and Entity B (Continuing Participant) to effect the assignment of the Assigned Interest.

The Recitals of the JOA Assumption Document state:

a.            The Assignor and the Continuing Participant are Participants under the JOA.

b.            By the Sale and Purchase Agreement, the Assignor agreed to assign to the Assignee, the

Assigned Interest.

c.             It is a requirement of the JOA that this Deed be executed to effect the assignment of the Assigned Interest.

With effect on and from the Assignment Date, but subject to satisfaction of the Conditions, the Assignor assigns the Assigned Interest to the Assignee (clause #)

•                    Assignment Date means the date of Completion under the Sale and Purchase Agreement which is DDMMYYYY (clause #).

•                    Assigned Interest means a #% Participating Interest held by the Assignor and all of the rights and interests of the Assignor under the JOA Documents relating to or deriving from that Participating Interest (clause #).

Clause # of the JOA Assumption Document confirms that on and from the Assignment Date, the Participants and their Participating Interests are:

In the above table, the Assignor is Entity A (the seller of the Sale Interest under the SPA) and the Assignee is Buyer Pty Ltd in its capacity as trustee of Buyer Trust (the Buyer of the Sale Interest under the SPA). The SPA states that the word assign includes sell, assign, transfer, dispose of, declare a trust over or otherwise deal with in any manner. The words assignment, assignor and assignee have corresponding meanings.

Under clause # of the JOA Assumption Document

Release

(a) The Continuing Participant releases and discharges the Assignor from the further performance of the terms, obligations and liabilities contained or implied in the JOA Documents to be observed and performed by the Assignor as the holder of the Assigned Interest on and from the Assignment Date.

(b) The Assignor remains liable to the Continuing Participant for, and must observe and perform, all the terms, obligations and liabilities contained or implied in the JOA Documents to be observed and performed by the Assignor as the holder of the Assigned Interest prior to the Assignment Date.

Relevant legislative provisions

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

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)