Edited version of private advice

Authorisation Number: 1052189390049

Date of advice: 6 November 2023

Ruling

Subject: GST and supply of a going concern

Question

Will the sale of the Business be a GST-free supply of a going concern pursuant to section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

The Vendor has entered into a Contract of Business (the Contract) with the Purchaser for the sale of the Business and Business Assets.

The Contract specifies the price for the sale of the Business.

The Vendor is registered for GST.

The Purchaser intends to register for GST prior to the date of settlement and will be registered as at the date of settlement.

The Vendor operates the Business from leased premises (the Property).

Pursuant to the Contract, the Vendor is selling the Business Assets to the Purchaser which include:

•         plant, equipment and fittings;

•         goodwill;

•         the right to possession, use and occupancy of the leased business premises;

•         the Business name;

•         the Vendor's interest in relevant equipment hire contracts;

•         the Vendor's interest in other material contracts;

•         any quotas and franchises the Vendor uses in the Business;

•         the services connected to the business premises;

•         any intellectual property relating to the Business;

•         any work in progress; and

•         all licences, permits, approvals and registrations necessary for the Business.

The Contract requires the Vendor to obtain for the Purchaser by the due date for settlement, a lease of the premises by transfer of the current lease with the Landlord's written consent.

The Vendor and the Purchaser have agreed in the Contract that the sale of the Business and the Business Assets is a supply of a going concern.

The Vendor warrants that it will carry on the Business as a going concern until settlement.

The Contract is subject to and conditional on the Landlord entering into a contract of sale of the Property to another entity.

Relevant legislative provisions

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

Reasons for decision

Subsection 38-325(1) of the GST Act provides that 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 for GST; and

(c)    the supplier and the recipient have agreed in writing that the supply is of a going concern.

Subsection 38-325(2) of the GST Act further defines a supply of a going concern as a supply under an arrangement under which:

(a)  the supplier supplies to the recipient all of the things 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 a part of a larger enterprise carried on by the supplier).

Supply under an arrangement

Paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5 explain what is meant by 'supply under an arrangement'.

The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under subsection 38-325(1) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply.

In this case, the Vendor entered into the Contract with the Purchaser under which the Vendor will supply the Business and the Business Assets. The Contract evidences the supplies to be made under the arrangement.

Supplier supplies all of the things necessary for the continued operation of an enterprise

The Business is the operation of a pub and live music venue. This is the identified enterprise for the purpose of subsection 38-352(2) of the GST Act.

The things which are necessary for the continued operation of an identified enterprise will vary according to the nature of the enterprise and the things supplied.

Paragraphs 74 and 75 of GSTR 2002/5 state:

74. The supplier is required to supply to the recipient all of the things that are necessary to carry on the 'identified enterprise' so that the recipient is put in a position to carry on the enterprise if it chooses.

75. Two elements are essential for the continued operation of an enterprise:

•         the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

•         the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

The Vendor will supply the Business Assets to the Purchaser which include:

•         plant, equipment and fittings;

•         goodwill;

•         the right to possession, use and occupancy of the leased business premises;

•         the Business name;

•         the Vendor's interest in relevant equipment hire contracts;

•         the Vendor's interest in other material contracts;

•         any quotas and franchises the Vendor uses in the Business;

•         the services connected to the business premises;

•         any intellectual property relating to the Business;

•         any work in progress; and

•         all licences, permits, approvals and registrations necessary for the Business.

The Vendor will also transfer the lease of the premises from which the Business is operated.

Based on the above, the Vendor will supply all the things necessary for the continued operation of the Business; therefore, paragraph 38-325(2)(a) of the GST Act will be satisfied.

Supplier carries on the enterprise until the day of the supply

Paragraph 141 of GSTR 2002/5 states:

141. The supply of everything necessary for the continued operation of an enterprise will only be a 'supply of a going concern' where the enterprise is carried on by the supplier until the day of the supply. All of the activities of the enterprise must be active and operating on the day of the supply. The activities must be capable of continuing after the transfer to new ownership.

Pursuant to the Contract, the Vendor warrants that it will carry on the Business until settlement. Therefore, paragraph 38-325(2)(b) of the GST Act will be satisfied.

Subsection 38-325(1) of the GST Act

Based on the conditions specified in the Contract, all the requirements in subsection 38-325(1) of the GST Act will be satisfied as:

•         the sale of the Business will be for consideration;

•         the Purchaser intends to register for GST prior to the date of settlement and will be registered as at the date of settlement; and

•         the Vendor and the Purchaser agree that the sale of the Business is a supply of a going concern.

Accordingly, the sale of the Business will be GST-free.