Private ruling: GST and the supply of a going concern
Date of advice: 23 January 2019
Published: May 2019
Date scheme commenced: January 2019

Ruling: Q1: Will the supply of the business be a GST-free supply 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

Relevant facts and circumstances: A business conducted across multiple sites, where premises are necessary to conducting the enterprise, is to be supplied to a buyer.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision: Summary: Subsection 38-325(1) provides that the supply of a going concern is GST-free if: a) the supply is for consideration 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. It is clear from the facts that all the elements of subsection 38-325(1) have been met. Subsection 38-325(2) provides that 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 the larger enterprise carried on by the supplier). Under the agreement, all assets are to be provided other than the excluded assets. There is nothing in the excluded assets that would be included in the definition of ‘all things necessary’ for the continued operation of the business. 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) states: 90. Where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied. Characteristics or attributes of particular premises may be determinative of the necessity for those particular premises to be supplied. For example, a factory building may have specially modified floors to take the weight of certain necessary machinery. The characteristics of the building itself are such that those particular premises are necessary for the continued operation of the enterprise. Many enterprises operate from leased premises. The supplier may supply the lease either by assignment or by surrendering the lease and facilitating the entry by the recipient into a lease or agreement to lease the same premises by the day of the supply. 1 The sale transaction was arranged so that the sites upon which the business is conducted are able to be provided to the buyer on the day of completion of the sale. It is noted that there are a small number of sites upon which the business is being conducted that will not have arrangements in place on the day of completion. Similarly, there are a small number of sites where the supplier continues to work with landlords to secure consent. An analogy can be made between this scenario and Example 24 of GSTR 2002/5: 152. The Bullish Unit Trust enters into a contract to sell a large commercial building which it has leased out for several years. At the time of sale, the building has only one tenant which occupies a part of the available floor space. The balance of the floor space is available for lease and the trust has engaged a leasing agent to find tenants for the remaining area. The trust is carrying on an enterprise of leasing the building as it is carrying on leasing activities on a regular or continuous basis. The supplier is taken to have supplied all things necessary for the continued operation of the enterprise, notwithstanding that the supply of any new arrangement is made directly to the buyer as the supplier will facilitate and procure that supply. The assets required for the continued operation of the enterprise, along with the facilitation of a new arrangement, will be sold to the buyer. Therefore, the requirement to supply all things necessary is met and the enterprise is being conducted up to the date of completion. The sale is a GST-free supply of a going concern.