Edited version of private advice

Authorisation Number: 1052253011033

Date of advice: 27 May 2024

Ruling

Subject: GST-free sale of a going concern

Question

Will the supply of Sale Interests under the (Sales Purchase Agreement) SPA, by the vendor, qualify as a GST-free supply of a going concern in accordance with section 38-325?

Answer

Yes. The supply of Sale Interest by the vendor will qualify as a GST-free sale of a going concern in accordance with section 38-325.

This ruling applies for the following periods:

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commences on:

DDMMYY

Relevant facts and circumstances

The vendor entered into a SPA with the purchaser for the supply of Sale Interests being:

•         The Tenements

•         The Plant & Equipment

•         The Contracts, and

•         The Records.

Tenements means:

•         Any application, lease, licence, authority or permit; and

•         A reference to any renewal, re-insurance, extension, modification, substitution, variation, amalgamation or subdivision of a tenement.

Contracts defined as:

•         Any agreement(s) between a seller and a Counterparty in respect of the Tenements

•         Any agreement or arrangements made in respect of the Tenements.

Records are defined to mean:

•         Originals and copies, in any form, of the information including all books, files, reports, records, correspondence, documents and other material necessary or desirable for the operation and performance of the Sales Interest

•         All information in respect of operations on or otherwise relating to the Tenements, analysis and reports conducted or prepared concerning the Tenements, including but not limited to, all surveys, maps, mosaics, aerial photographs, electromagnetic tapes, electromagnetic or optical discs, sketches, drawings, memoranda, drill cores, logs of drill cores, geophysical, geological, geological or drill maps, sampling and assay reports, historical production, operational and quality data and energy consumption and emissions reporting data, notes and other relevant data in whatever form.

Clause 16.2 of the SPA provides:

•         The parties agree that the supply of the Sale Interests constitutes the supply of a going concern for the purposes of the GST Law.

•         The purchaser warrants that it is registered or required to be registered for Goods and services Tax (GST) and will remain so until completion.

The purchase price means:

•         The sum of $XX,XXX,XXX

The reference to employees engaged in activities connected with the Tenements, reflects the fact that exploration activities are not performed by employees but are outsourced to third party contractors.

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 1999subsection 38-325(2)

Reasons for decision

Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is a GST-free supply if it is supplied under an arrangement for the supply to be a going concern.

Section 38-325 states:

(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:

(d)          the supplier supplies to the *recipient all of the things necessary for the continued operation of an *enterprise; and

(e)          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 being carried on by the supplier)

All the above elements must be satisfied for the supply to be a GST-free sale of a going concern.

Based on the facts of this case, all of the elements of subsection 38-325(1) and subsection 38-325(2) will be satisfied. That is, the supply will be for consideration, the recipient is registered or required to be registered for GST and all parties have agreed in writing that the supply is of a going concern.

The vendor is supplying all the things necessary for the continued operation of the enterprise being carried on and will continue to carry on the enterprise up until the date of completion of the SPA.

Conclusion

The supply of the Sale Interests by the vendor will qualify as a GST-free supply of a going concern, as all of the provisions in subsections 38-325(1) and (2) will be met.