Private ruling: GST and Supply of a GST Free Going Concern
Published: November 2012

Ruling: Q1: Is your supply of a Joint Venture Interest a GST-Free supply of a going concern in accordance with section 38-325 of the GST Act? | A1: Yes

Relevant facts and circumstances: You, the Vendor are registered for GST. You are joint legal title holder of a specified licence/permit (the Licence), with Entity B. You and Entity B are registered as a GST Joint Venture (JV). You are the JV operator, and Entity B is the Participant. You both hold a percentage interest in the Licence. The purchaser Entity C holds an interest in the Licence in respect to the specified item. You, Entity B and Enity C entered into a contract for sale to consolidate your respective interest in the Licence. The transfer of your interests in the Licence is for non-monetary consideration. Completion of the contract occurred on a specified date (supply date). The existing JV will be terminated on supply date, and a new JV will be registered. You have specific contracts in place which have been listed as specific exclusions from the sale of your interest in the Licence. You have provided information in relation to the enterprise being carried on by the JV, and current operations. You provided the key provision in the contract for sale. You and Entity C have agreed in writing that the transfer of the Interests in the Licence are a supply of a going concern,


Reasons for decision: Summary: The 'supply of a going concern' is GST-free where the requirements of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. Subsection 38-325(1) requires that: a) the supply must be for consideration; b) the recipient of the supply must be registered or required to be registered for GST; c) the supplier and the recipient have agreed in writing that the supply is of a going concern. Under subsection 38-325 (2) the supply must be made under an arrangement under which: d) the supplier supplies to the recipient all of the things that are necessary for the continued operation of the enterprise; and e) 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). 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) discusses a 'supply of a going concern' for the purposes of section 38-325 of the GST Act and explains when the 'supply of a going concern' is GST-free. | Detailed Reasoning - Supply under an arrangement: Paragraph 19 of GSTR 2002/5 explains that the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. However, the things supplied under the arrangement must relate to the same enterprise, that is, the enterprise referred to in paragraphs 38-325(2)(a) and (b) (the 'identified enterprise'). Paragraph 20 of GSTR 2002/5 goes on to say that the supplier and the recipient may identify the arrangement and the supplies under the arrangement, which in aggregate, may comprise the 'supply of a going concern' in the written agreement which is required under paragraph 38-325(1)(c) or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. You entered in to a contract for sale with Entity C that provides for you to supply your Interest in a Licence to Entity C, as consideration Entity C will assign and transfer a percentage of their Interest in the Licence. | Detailed Reasoning - Identified enterprise: Paragraphs 38-325(2)(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 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. Paragraph 195 of GSTR 2002/5 explains that if a business structure is a joint venture, then each joint venturer is capable of conducting an enterprise. Provided all the requirements of 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. You hold an Interest in a Licence, and carry on a JV with Entity B. From the facts provided, it is considered that you and Entity B are each carrying on an enterprise through your participating interest in the JV. This is the identified enterprises for the purposes of paragraphs 38-325(2)(a) and (b) of the GST Act. | Detailed Reasoning - Supplier supplies all things necessary for the continued operation of the enterprise: Paragraphs 72 to 80 of GSTR 2002/5 provide guidance on the term 'all of the things necessary for the continued operation of the enterprise'. An important element is that the supplier is required to supply to the recipient all of the things that are 'necessary' to carry on the 'identified enterprise', so that the recipient is put into a position to carry on the enterprise, if it chooses. Further to this, 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. As per the contract for sale, you will supply by assignment and transfer your respective interest in the Interest. Parahraph 72 of GSTR 2002/5 states: The term 'necessary' incorporates every attribute of an enterprise that is essential for the continued operation of the 'identified enterprise'. The things that are 'necessary' will depend on the nature of the enterprise carried on, and the core attributes of that enterprise. The term 'all of the things that are necessary' does not refer to every conceivable thing which might be used in the 'identified enterprise'. We agree that certain things that are used in an existing enterprise may not be essential for the continued operation of the enterprise. In this case we agree that the contracts being excluded would not be necessary for the continued operation of the identified enterprise. Based on the facts provided it is considered all of the assets and operating structure necessary for the continued operation of your enterprise are being supplied as part of the contract for sale. The requirement s of paragraph 38-325(2)(a) of the GST Act have been satisfied. | Detailed Reasoning - Supplier carries on the enterprise until the day of the supply: In accordance with paragraph 38-325(2)(b) of the GST Act, the supplier must carry on the enterprise until the day 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 day of 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 things that are necessary for the continued operation of the enterprise. As per paragraph 141 of GSTR 2002/5 to be a 'supply of a going concern 'the activities of the enterprise must be active and operating on the day of supply, and the activities must be capable of continuing after the transfer to new ownership. Based on the facts supplied, we consider that you have carried on the enterprise until the day of the supply. Accordingly, you have satisfied the requirements of subsection 38-325(2) of the GST Act. | Detailed Reasoning - Subsection 38-325(1): Under the terms of the contract for sale the transfer and assignment of your Interest is made for non-monetary consideration in. As such it is considered your supply is made for consideration. Both you and Entity C are registered for GST. Both parties have agreed in writing in the contract for sale that the supply is of a going concern. Accordingly, you have satisfied the requirements of subsection 38-325(1) of the GST Act. | Detailed Reasoning - Conclusion: Based on the information supplied to us, you meet the requirements of section 38-325 of the GST Act. Therefore, the supply of your Interest is a GST-free supply of a going.

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