Private ruling: GST and purchase of a business as a going concern
Published: June 2012

Ruling: Q1: Is your purchase of the business a creditable acquisition for which you are entitled to GST credits? | A1: No, your purchase of the business is not a creditable acquisition and you are not entitled to GST credits for the purchase. On the facts provided, your purchase is not an acquisition of a taxable supply but an acquisition of a GST-free supply of a going concern.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are registered for GST. You (as the buyer) entered into a written contract with the seller to purchase a business from the seller. The seller is registered for GST. The purchase price was specified in the contract. You will be making taxable supplies in operating the business. Under the contract, you and the seller agreed that: · the sale of the business is to be treated as a GST-free supply of a going concern · the business is to be sold on a 'walk-in, walk-out' basis · all of things necessary for the continued operation of the business including the specified plant and equipment are to be supplied by the seller · the seller must surrender their lease over the business premises and facilitate your entry into a new lease (with the lessor) over the same premises by the time of settlement, and · the seller must carry on the business until the settlement date of the contract.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 section 9-20. | A New Tax System (Goods and Services Tax) Act 1999 section 11-5. | A New Tax System (Goods and Services Tax) Act 1999 section 11-15. | A New Tax System (Goods and Services Tax) Act 1999 section 11-20. | A New Tax System (Goods and Services Tax) Act 1999 section 38-325.

Reasons for decision: Summary: Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a creditable acquisition if: · you acquire anything solely or partly for a creditable purpose · the supply of the thing to you is a taxable supply · you provide or are liable to provide consideration for the supply, and · you are registered or required to be registered for GST. Under section 11-20 of the GST Act, you are entitled to GST credits for any creditable acquisition that you make. | Detailed Reasoning - Creditable purpose: According to section 11-15 of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on an enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies, or is of a private or domestic nature. Section 9-20 of the GST Act defines an enterprise to include an activity, or a series of activities, done in the form of a business. As you are purchasing the business and will be making taxable supplies in operating the business, your purchase of the business is for a creditable purpose. | Detailed Reasoning - Taxable supply: Section 9-5 of the GST Act provides that you make a taxable supply if: · you make the supply for consideration · the supply is made in the course of carrying on an enterprise · the supply is connected with Australia, and · you are 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. | Detailed Reasoning - Supply of a going concern: 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 · 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. 'Supply of a going concern' is defined under subsection 38-325(2) of the GST Act as 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 part of a larger enterprise carried on by the supplier). In relation to the supply of premises necessary for the continued operation of an enterprise, paragraph 58 of Goods and Services Tax Ruling GSTR 2002/5 states: | Detailed Reasoning - Supply of Right to Occupy Premises: 58. 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. Further, in relation to the day of supply, paragraph 161 of GSTR 2002/5 states: | Detailed Reasoning - The day of the supply: 161. The day of the 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. The day of the supply occurs when the supplier has done everything to satisfy the obligations under the contract or arrangement governing the supply and the recipient has assumed effective control and possession of all of the things that are necessary for the continued operation of the enterprise. In this case, the contract provides for the business to be sold on a 'walk-in, walk-out' basis, and specifies the plant and equipment to be included in the sale of the business as a going concern. The seller also agrees to surrender their lease over the business premises and facilitate your entry into a new lease (with the lessor) over the same premises by the time of settlement. Based on our views in GSTR 2002/5, we consider that the day of the supply of the business is the settlement date of the contract. We also consider that all of the things necessary for the continued operation of the business are being supplied by the seller under the contract. In addition, the seller must carry on the business until the time of settlement/day of the supply. Therefore, on the facts provided, our view is that the sale of the business is a supply of a going concern under subsection 38-325(2) of the GST Act. Further, all of the three requirements for a supply of a going concern to be GST-free under subsection 38-325(1) of the GST Act (as outlined above), are also satisfied. That is, the supply is for consideration, being the purchase price under the contract; you are registered for GST as the recipient of the supply; and you and the seller have agreed in writing that the supply is of a going concern under the terms and conditions of the contract. As such, the sale of the business is a GST-free supply of a going concern under subsection 38-325(1) of the GST Act. This means that the sale to you is not a taxable supply under section 9-5 of the GST Act and therefore, your purchase of the business is not a creditable acquisition under section 11-5 of the GST Act. Accordingly, you are not entitled to any GST credits for the purchase under section 11-20 of the GST Act.

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.