Private ruling: GST and GST-free supply of a going concern of assets.
Published: August 2016

Ruling: Q1: Is the sale of assets constitutes a GST-free supply of a going concern under section 38-325 of the A New Tax System (Goods and services Tax) Act 1999 (GST Act)? | A1: Yes. The sale of assets constitutes a GST-free supply of a going concern under section 38-325 of the GST Act.

Relevant facts and circumstances: • The Sale and Purchase Agreement ("SPA") was executed between the Seller of the Assets of energy transportation and storage enterprise and the Buyer. • The SPA states that completion is conditional on the Seller obtaining the written consent of the Minister to transfer the Relevant Licence to the Buyer under section 79 of the Relevant Act . • In accordance with the SPA, the Seller agreed to sell to the Buyer the relevant assests • Rights and interests under certain Contracts. • The rights, interest and obligations under the various Contracts will be novated or assigned to the Buyer. • In Consideration for the Assets, the Buyer will pay an amount of $XXX (GST-exclusive) to the Seller as per the SPA. • The Seller and the Buyer have agreed to treat the sale of the Assets as a GST-free supply of a going concern pursuant to section 38-325 of the GST Act. • The Seller and the Buyer are registered for GST. • The Seller will carry on the identified enterprise until the day of the supply.

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

Reasons for decision: Summary: A supply is a GST-free supply of a going concern when all the requirements of section 38-325 of the GST Act are satisfied. 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 is registered or required to be registered for GST; and • the supplier and the recipient have agreed in writing that the supply is of a going concern. The Buyer will provide consideration to the Seller for the supply of the Assets by the Seller. Both parties are registered for GST and have agreed in writing that the supply is of a going concern as per the Sales and Purchases Agreement (SPA). Therefore, the requirements of subsection 38-325(1) of the GST Act have been satisfied. Subsection 38-325(2) of the GST Act provides that a supply of a going concern is a supply 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 until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). | Detailed Reasoning - Supply under an arrangement: Although the word arrangement is not defined in the GST Act, Goods and Services Tax Ruling GSTR 2002/5 explains at paragraph 19 that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement provided the things supplied relate to the identified enterprise. We consider that the supply of the Assets under the SPA as supply made under an arrangement. The Seller will also supply the usage rights of the Licence to the Buyer. The agreements between the Seller and the Buyer constitute an arrangement for the purposes of section 38-325 of the GST Act. | Detailed Reasoning - Identified Enterprise: Under paragraph 38-325(2)(a) of the GST Act, the Seller should supply to the Buyer all the things necessary for the continued operation of an 'identified enterprise'. Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). Once the enterprise is identified, it is the supply in relation to that enterprise that must meet the requirements of subsection 38-325(2) of the GST Act. Also, the supplier must carry on this enterprise until the day of the supply, whether or not as part of a larger enterprise. Based on the facts provided we are satisfied that the Seller is carrying on an enterprise of energy transportation and storage services which will be supplied to the Buyer under the SPA. | Detailed Reasoning - Supply of all the things necessary: Subsection 38-325(2) of the GST Act requires that the supplier must supply all of the things necessary for the continued operation of the enterprise. The requirements in paragraphs 38-325(2) (a) and (b) of the GST Act apply to the 'identified enterprise'. In relation to the meaning of the phrase 'all of the things necessary for the continued operation of an enterprise', paragraph 80 of the GSTR 2002/5 states: The 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. Furthermore, paragraph 75 of GSTR 2002/5 identifies two elements that are essential for the continued operation of an enterprise: • the assets necessary for the continued operation of the enterprise, and • the operating structure and process of the enterprise. It is clear from paragraph 75 of GSTR 2002/5 that what is transferred must be more than the business assets of an identified enterprise. The Seller will novate or assign a number of agreements and other related leases and deeds to the Buyer on the date of completion as per the SPA. The Seller will also transfer the Relevant Licence by way of Ministerial approval to the Buyer. We consider that the supplier will supply all of the things necessary for the continued operation of the enterprise under subsection 38-325(2) of the GST Act, as per the facts provided. | Detailed Reasoning - Enterprise carried on until the day of 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 supply. All of the activities of the enterprise must be active and operating on the day of supply. Paragraph 141 of GSTR 2002/5 advises that the activities must be capable of continuing after the transfer to the new ownership. 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. Paragraph 161 of GSTR 2002/5 explains that the day of supply is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier. The Seller will continue to carry on their gas transportation and storage enterprise until the day of completion. The Seller will meet their respective obligations by continuing their ordinary business until the completion as per the SPA. On the basis that all of the requirements of section 38-325 of the GST Act have been met, the supply of the Assets in relation to the enterprise of gas transportation and storage by the Seller to the Buyer is a GST-free supply of a going concern.