Edited version of private advice

Authorisation Number: 1052330561363

Date of advice: 18 November 2024

Ruling

Subject: Going concern and sale of assets

Question

Is the sale, as described in the Asset Sale Agreement, a sale of a going-concern pursuant to paragraph 38-325(2)(a) of the GST Act?

Answer

Yes.

This ruling applies for the following period

The scheme commence on:

Relevant facts and circumstances

You are registered for GST.

You carried on an enterprise.

The purchaser is registered for GST.

You and the purchaser signed and agreed to the terms of the Agreement.

The Agreement outlined the sale of your business to the purchaser.

The relevant Agreement terms are listed below:

Assets means each asset which comprises the client book operated by the Vendor in

connection with its Business including but not limited to:

(a) the Confidential Information;

(b) the Goodwill;

(c) the rights of the Vendor under and benefit of the Existing Contracts; and

(d) the Client Records;

but excludes the Excluded Assets.

Business means the Vendor's business

3.1 Sale and Purchase

On Completion the Vendor sells and the Purchaser buys the Assets free from any Security

Interest for the Purchase Price on the terms and conditions of this agreement.

4.1 Conduct of Business

The Vendor must carry on its Business until Completion in the normal and ordinary course

with due care and in accordance with normal practice (having regard to the nature of the

Business and good commercial practice). In particular, the Vendor must use their best

endeavours to maintain and service the existing Clients and complete all Client work in

progress in accordance with best practice and the specifications of the Client.

Clause 15.3 Going Concern

The Vendor and Purchaser each warrant that they are registered for GST and acknowledge and agree that the sale of the Assets constitutes a going concern for tax purposes.

Premises are not a required to carry on your enterprise.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-325(1)

A New Tax System (Goods and Services Tax) Act 1999 section 38-325(2)

Reasons for decision

Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Service Tax) Act 1999 (GST Act).

Subdivision 38 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that, if certain conditions are satisfied, a supply of a going concern is GST-free.

Section 38-325 of the GST Act 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:

(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 a part of a larger enterprise carried on by the supplier).

(*denotes a term defined under section 195-1 of the GST Act).

We must first establish if the supply, is a supply of a going concern as define in section 38-325(2).

Supply under an arrangement

Paragraphs 19 and 20 of 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) 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, you entered into an Agreement with the purchaser under which you shall transfer your business. The business is of "insurance brokerage services", which includes the Assets.

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

Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which the supplier must supply to the recipient all the things that are necessary to carry on the enterprise so that the recipient is put in a position to carry on the enterprise.

An enterprise is defined in section 9-20 of the GST Act to include an activity, or series of activities, done in the form of a business.

You are carrying on an insurance brokerage enterprise. This is the identified enterprise for the purpose of subsection 38-325(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.

Based on the information provided, you are contracted to supply all the things that are necessary for the continued operation of your enterprise and the purchaser will be in a position to carry on that enterprise. The Agreement states that each asset which comprises the client book operated by the Vendor in connection with its Business includes but is not limited to:

(a) the Confidential Information;

(b) the Goodwill;

(c) the rights of the Vendor under and benefit of the Existing Contracts; and

(d) the Client Records;

Premises are not essential for the continued operation of the enterprise and therefore not included in the supply of the business.

Accordingly, the transfer of the business under the Agreement is a GST-free supply of a going concern as all the requirements in section 38-325 of the GST Act are satisfied.