Edited version of private advice

Authorisation Number: 7915151784947

Date of advice: 11 May 2022

Ruling

Subject: GST and going concern

Question

Was the supply made by you to Company B, as a result of the novation deed entered into, a GST-free supply of a going concern, within section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply was a GST-free supply of a going concern under section 38-325 of the GST Act.

This ruling applies for the following period:

xx

The scheme commences on:

x

Relevant facts and circumstances

1.    You are registered for GST and supply oil and natural gas.

2.    You are a Joint Venture (JV) participant with Company B.

3.    On xx, you entered into a Joint Exploration Agreement (JV Agreement) with three other entities.

4.    Under this JV Agreement, you were invited to participate in exploration activities, in the tenements, under an unincorporated exploration.

5.    As a participant, you contributed towards exploration expenditures and in return earns a equitable interest in the JV property and the right to participate and benefit from the development and exploitation of minerals in the tenements.

6.    Under the JV Agreement, you were granted the right to transfer your rights, obligations and interest in the joint venture to certain xx companies.

7.    On xx, you entered into a deed (Novation Deed) for the novation of all your rights and obligations under the JV Agreement to Company B.

8.    There is also a separate deed titled "Supply of Going Concern Deed" which was executed. In this deed, you agreed with Company B that the supply of all things by you under and in connection with the JV Agreement and the Novation Deed would constitute a GST-free supply of going concern by you.

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 section 38-325(1)

Reasons for decision

Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the requirements that must be satisfied in order for a supply to be a GST-free sale of a going concern as follows:

(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).

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

The Commissioner's view on what is a supply of a going concern, and when it is GST-free is outlined in 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).

Paragraph 195 of GSTR 2002/5 states:

195. Whether or not a business structure is a joint venture is a matter of fact. If the business structure is a joint venture, then each joint venturer is an entity which is capable of conducting an enterprise. Provided that all of the requirements of section 38-325 are satisfied, it is possible for a joint venturer entity to make a GST-free 'supply of a going concern'. This may be when part or all of the enterprise conducted by the joint venturer is supplied, provided that what is supplied is all of the things that are necessary for the continued operation of the 'identified enterprise'.

Under the JV Agreement and the Supply of Going Concern Deed provided by you (the supplier), it states that you will provide the following to the recipient (Company B):

•         the supplier supplied to the recipient all of the things that are necessary - in this case you novated all of your rights and obligations in relation to the joint venture enterprise to the recipient; and

•         the supplier carried on the enterprise until the day of the supply

•         both you and the recipient agree that this is a supply of going concern as evidenced by the going concern deed.

Given that:

1.    the supply made under the Agreement is for a consideration of $xx, and

2.    the recipient is registered for GST; and

3.    the supplier and recipient have agreed in writing that the supply is a going concern,

the Commissioner agrees that the supply made by you to the recipient under the Novation Deed, was a GST-free supply of a going concern pursuant to section 38-325 of the GST Act.