Private ruling: GST and acquisition of a supply of a going concern
Published: December 2011
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Will the acquisition of a hotel business be an acquisition of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the acquisition of the hotel business will be an acquisition of a going concern for the purposes of section 38-325 of the GST Act.

Relevant facts and circumstances: You are registered for Goods and Services Tax (GST). Acquisition of the hotel business by you: An agreement will be entered between you and the vendor to acquire the hotel business (the business). Under the agreement, the parties agree that all supplies made under the agreement are supplies of a going concern. The purchase price will be excluding GST as the parties have agreed that the supply will be a supply of a going concern. You will enter into a Lease Agreement with the Vendor, pursuant to which you will lease the property. The Lease Agreement will commence on the date of settlement of the agreement. Acquisition of hotel business and the property by the vendor: The vendor will acquire the above business and the property from the current owners under an agreement with the owners. The vendor will enter into a Deed of Assignment (DA) with you, the current owners and the other relevant parties to assign the vendor's rights, title and interest under a benefit clause of the agreement between the vendor and the current owners. The owner of the property and the owner of the business agreed to sell the property and the business to the vendor. The acquisition of the business and the property by the vendor from the current owners and the sale of the business and assets by the vendor to you will occur on the same day. But the acquisition the business and the property will be completed first.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 and | A New Tax System (Goods and Services Tax) Act 1999 Section 38-325.

Reasons for decision: Detailed Reasoning - Taxable Supply: Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a taxable supply if: · it makes a supply for consideration; and · the supply is in the course or furtherance of an enterprise that it carries on; and · the supply is connected with Australia; and · the entity is registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Where the vendor is not registered for GST, the sale of the property will not be a taxable supply as the requirements of section 9-5 of the GST are not met. An entity that is not registered for GST cannot charge GST on the supply it makes. However, where the supply satisfies the positive limbs of section 9-5 of the GST Act, it raises the issue of whether the supply is a GST-free supply of a going concern. | Detailed Reasoning - GST-Free Supply: A supply of a going concern is a GST-free supply where the requirements of section 38-325 of the GST Act are satisfied. Subsection 38-325(2) of the GST Act provides that for a supply to be a GST-free supply of a going concern the supply must be made under an arrangement under which: · the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and · the supplier carries on, or will carry on, the enterprise (whether or not as part of a larger enterprise) until the day of the supply; Subsection 38-325(1) of the GST Act provides that the supply of a going concern is GST-free if: · the supply is for consideration; and · the recipient of the supply is registered or required to be registered for GST; and · the supplier and the recipient must have agreed in writing that the supply is of a going concern. | Detailed Reasoning - 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 paragraph 38-325(1)(c) 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. However, an arrangement between a supplier and a recipient is characterised not merely by the description which both parties give to the arrangement, but by objectively examining all of the transactions entered into and the circumstances in which the transactions are made. (Refer to paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5.) In our view, the agreement and the Lease Agreement between you and the vendor will be considered as an arrangement that satisfies the requirements of subsection 38-325 (2) of the GST Act. | Detailed Reasoning - Supplier supplies all things necessary for the continued operation of an enterprise: Paragraphs 38-325(a) and (b) of the GST Act require the conditions to be satisfied in relation to an identified enterprise. The term enterprise is defined in section 9-20 of the GST Act and includes an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property. According to the facts provided, the vendor will acquire the property where the business is being carried out and lease the property to you on the same day of the supply of the business. It is considered that the leasing activity in relation to the property as an enterprise carried out by the vendor. A supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. (Refer to paragraph 30 of GSTR 2002/5.) According to the facts provided, the vendor will acquire the business from the current owner and will supply this business including the assets to you on the same day. Therefore, it is our view that all of the things necessary for the continued operation of the enterprise will be supplied under the arrangement. | Detailed Reasoning - Supplier carries on the enterprise until the day of the supply: Under paragraph 38-325(2)(b) of the GST Act, a supply under an arrangement will only be the supply of a going concern where the enterprise is carried on, or will be 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 (refer to paragraph 141 of GSTR 2002/5). The day of supply is determined in each case by reference to the terms of the particular contract, if applicable, and the nature of the supply. It is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier (refer to paragraph 161 of GSTR 2002/5). According to the agreement with the vendor, the vendor will acquire the business and the property from the current owners under the agreement with them on the same day the completion of the agreement with you. But the agreement with the current owners will be completed first. It is our view that the vendor will take ownership of both the business and the property prior to making these supplies to you. Therefore, it is considered that the vendor will carry on the enterprise of the business at the time of making that supply to you along with the supply of leasing of the property. | Detailed Reasoning - Supply for consideration: This requirement is satisfied as a result of the vendor agreeing to sell the business to you for the purchase price specified in the agreement. We consider that the supply is made for consideration. | Detailed Reasoning - Recipient is registered or required to be registered: You as a purchaser is registered for GST and this requirement is satisfied | Detailed Reasoning - Agreed in writing that the supply is of a going concern: The term agreed in writing means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply is a supply of a going concern (refer paragraph 181 of GSTR 2002/5). The agreement with the vendor states that the vendor and you agree that all of the supplies made by the vendor under this agreement are supply of a going concern. This requirement is satisfied in view of this clause contained in the agreement. Taking all the above facts into consideration, it is considered that the acquisition of the hotel business by you will be GST-free acquisition of a supply of a going concern.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.