Edited version of private advice

Authorisation Number: 1051995992634

Date of advice: 22 June 2022

Ruling

Subject: GST and supply of a going concern

Question

Is the supply of each of:

1. the Land pursuant to the Land Sale Agreement between you and Purchser (LSA); and

2. the Assets pursuant to the Asset Sale Agreement between you and Purchaser (ASA),

a GST-free supply within the meaning of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

The scheme commences on:

The date of issue of this private ruling.

Relevant facts and circumstances

You are an Australian private company. You previously operated a business in Victoria (the Land).

The business ceased operations and was placed in care and maintenance mode.

On XXX the following agreements were entered into:

a) Lease of the Land and Assets from you to the lessee (Lease);

b) Secondment Agreement for the secondment of staff from you to Purchaser (Secondment Agreement);

c) Employee Transfer Deed for the transfer of staff from you to Purchaser (Employee Transfer Deed);

d) Land Sale Agreement; and

e) Asset Sale Agreement,

(together the Transaction Documents).

The purpose and effect of the Transaction Documents was to enable:

a) Purchaser to take possession (but not ownership) of the Land and Assets and commence such refurbishments and/or remediation as required to allow the recommencement of the abattoir operations;

b) To provide Purchaser with access to staff and any required licence/sub-licences to allow it to commence those operations; and

c) Provide for the transfer of the Land and Assets to Purchaser following satisfaction of all conditions precedent under the Land Sale Agreement and Asset Sale Agreement.

Due Diligence Condition precedent to LSA and ASA

The LSA and ASA are subject to Purchaser conducting Due Diligence Investigations and being satisfied of the outcome. The Due Diligence Investigation performed by Purchaser is for the purpose of determining the viability of recommencing abattoir operations using the Land and Assets.

Leased property

The property that is the subject of the Lease is the Premises.

•         Premises is defined as the premises specified (being the Land) and includes all of the Landlord's Fixtures.

•         Landlord's Fixtures means all fittings and fixtures (including fixed plant and equipment) in the Premises and the Equipment.

•         Equipment is defined to mean the plant and equipment referred to in the Asset Sale Deed.

•         The Asset Sale Deed lists all of the Plant forming part of the Assets.

Assets supplied under the Asset Sale Agreement

Assets is defined in the Asset Sale Agreement to mean each of the assets of the Vendor on the Completion Date used in or relating to the conduct of the Business (other than the Stock), but including the Plant, the Authorisations, the Records, the Intellectual Property and the rights of the Vendor under the Contracts.

Business is defined under the Asset Sale Agreement as "the business of leasing the Assets and the Premises".

Settlement under the Land Sale Agreement and completion of the Asset Sale Agreement was subject to an application to the Foreign Investment Review Board (FIRB).

FIRB Approval was granted and settlement of the Land Sale Agreement and completion of the Asset Sale Agreement occurred.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision

The conditions to be met in making a sale of a going concern is for GST purposes are set out in section 38-325.

(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 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 (whether or not as part of a larger enterprise carried on by the supplier).

Based on the facts provided, the supply of the going concern is for consideration as per the contract price; this satisfies paragraph 38-325(1)(a).

Paragraph 38-325(1)(b) requires that the recipient be registered for GST when the going concern is supplied. Based on publicly available information, the recipient purchaser is registered for GST at all relevant times.

There is a check in the box of the Particulars of Sale under the Land Sale Agreement that the sale is a going concern. Clause XX of the General Conditions therefore applies and provides that the parties agree that the supply of the Land is a going concern. Similarly, Clause XX of the Asset Sale Agreement provides that the parties agree that the sale of the Business, Assets and Premises under the Related Agreements, constitutes a GST-free Supply of a Going Concern.

Accordingly, there is a written agreement between you as supplier and Purchaser as recipient that the supply of the Land and Assets is a supply of a going concern as required by section 38-325(1)(c).

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) notes at paragraph 29 that subsection 38-325(2) requires that there be an 'identified enterprise' carried on by you as the supplier in the arrangement with the purchaser.

The relevant portion of section 9-20 defines 'enterprise' this way:

(1) An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

...

Of particular relevance is paragraph 9-20(1)(c) as it establishes that a leasing activity or activities are an enterprise in their own right. On the facts provided, the sale will be made in the course of your leasing enterprise as the principal supply is the supply of real property and assets subject to the lease.

On settlement of the Land Sale Agreement, Purchaser became the owner of the Land and therefore "stepped into the shoes" of you as lessor under the Lease. Simultaneously, on settlement of the Asset Sale Agreement Purchaser became the owner of the Assets and held a sufficient interest in the Assets (as well as the land) to be entitled to supply them pursuant to the Lease.

As such, upon the completion of the Land Sale Agreement and the Asset Sale Agreement, you supplied Purchaser all things necessary for the continued operation of the enterprise of leasing the Land and Assets. Paragraph 38-325(2)(a) is met.

The Lease is for a period of 12 months. Pursuant to clause XX of the Asset Sale Agreement you were required to carry on the Business up to and including Completion. Business is defined for this purpose as "the business of leasing the Assets and the Premises".

Pursuant to clause XX of the Land Sale Contract, you were required to continue the Lease up to and including Settlement.

The Land Sale Agreement and Asset Sale Agreement settlement completed simultaneously. Settlement was defined in clause XX of the General Conditions to the Land Sale Agreement to be the time at which Completion of the Asset Sale Agreement took place.

Therefore, section 38-325(2)(b) will be satisfied.

Conclusion

The supply of the Land and Assets subject to the lease between you and the lessee is a GST-free supply of a going concern.