Private ruling: GST and supply of a going concern
Date of advice: 24 February 2016
Published: April 2016

Ruling: Q1: Is the supply of the items, made pursuant to the agreement (Agreement), by Entity A 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 supply of the items made pursuant to the Agreement by Entity A is a GST-free supply of a going concern under section 38-325 of the GST Act.

Relevant facts and circumstances: Entity A is registered for GST. Entity A and Entity B were selected by Entity C to design, construct and operate an asset (Asset). Entities A, B and C entered into a number of agreements, including agreements under which Entity C: • granted Entity A the right to operate the Asset • entered into a lease with Entity B (Lease). Entity B and Entity A entered into a sublease (Sublease) in respect of the same land interests described in the Lease. Entity A pays rent to Entity B in accordance with the terms of the Sublease. Entity A is the operator of the Asset and charges the users of the Asset. Entities A and B are in the process of selling their respective businesses to Entity D and Entity E for separate amounts. Entities A, B, D, and E have entered into various agreements under which Entities A and B will assign their rights and obligations under the various agreements entered into with Entity C to Entities D and E. Entities D and E will assume all the rights and obligations of Entities A and B under the agreements entered into with C. The aim of the sale is to, in effect, replicate the structure under the arrangement with Entity A being substituted with Entity D and Entity B being substituted with Entity E. Entities A and B have agreed that they will each carry on their respective enterprises up until the day of the supply. The parties have agreed in writing in the Agreement that the supply is a supply of a going concern for the purposes of the GST Act Entity D is in the process of being registered for GST and should be registered with effect from a date on or prior to the completion date.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | 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 38-325 | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-325(2) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: All legislative references are to the GST Act. Under section 7-1, GST is payable on taxable supplies. Under section 9-5, you make a taxable supply if: • you make a supply for consideration • the supply is made in the course or furtherance of an enterprise that you carry on • the supply is connected with the indirect tax zone, 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. Section 38-325 provides that, if certain conditions are satisfied, a supply of a going concern is GST-free. This means that, in the case of a supply which would otherwise be a taxable supply, or an input taxed supply, the supply is GST-free if it is supplied under an arrangement for the supply of a going concern. Section 38-325 states: (1) The *supply of a going concern is GST-free if: (a) the supply is for *consideration; and (b) the *recipient is *registered or *required to be registered; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. (2) 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 a larger enterprise carried on by the supplier). (* denotes a term defined in section 195-1) In order to determine whether the supply by Entity A to Entity D is a GST-free supply of a going concern, it first needs to be determined whether the sale is a supply of a going concern as defined in subsection 38-325(2). As discussed at paragraph 19 of 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), the term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. In this case, the enterprise being supplied by Entity A will occur by way of transfer of the rights and obligations under various agreements entered into by Entity D pursuant to the Agreement. In our view, the Agreement constitutes an arrangement that satisfies the requirements of subsection 38-325(2). Paragraphs 38-325(2)(a) and 38-325(2)(b) set out the requirements which need to be satisfied in relation to an identified enterprise. The term 'enterprise' is defined in section 9-20 and includes, among other things, an activity or series of activities, done: • in the form of a business • 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 the grant of an interest in property. Entity A conducts an enterprise of operating the Asset, using its own assets on land sub-leased from Entity B. We consider that the enterprise carried on by Entity A is continuous and uninterrupted and is an 'identified enterprise'. Paragraph 38-325(2)(a) requires the supplier to supply all of the things that are necessary for the continued operation of an enterprise. Paragraph 80 of GSTR 2002/5 explains that 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. Entity A will be supplying the following items to Entity D under various agreements pursuant to the Agreement: • the assets • the business, and • its rights and obligations under the Sublease and other various agreements. We consider that all of the things necessary for the continued operation of the enterprise carried on by Entity A will be supplied to Entity D pursuant to the Agreement. Therefore, the requirement of paragraph 38-325(2)(a) will be met. Paragraph 38-325(2)(b) requires the supplier to carry on the enterprise until the day of the supply. As stated in paragraph 141 of GSTR 2002/5, all of the activities of the enterprise must be active and operating on the day of the supply and the activities must be capable of continuing after the transfer to new ownership. Further, paragraph 161 of GSTR 2002/5 explains that the day of the supply is the date when effective possession and control of the enterprise is transferred to the recipient. In your case, the day of supply is considered to be the completion date. Pursuant to the Agreement, Entity A has agreed to carry on its enterprise of operating the Asset until the day of the supply. Based on the binding obligations provided for in the Agreement, we accept that Entity A will carry on the enterprise until the day of the supply. Therefore, the requirement of paragraph 38-325(2)(b) will be met. The supply of the enterprise of operating the Asset by Entity A to Entity D is, therefore, a supply of a going concern under an arrangement that meets the requirements of subsection 38-325(2). The supply by Entity A to Entity D also meets the requirements of subsection 38-325(1) as: • the supply is for consideration • Entity D is in the process of being registered for GST and should be registered with effect from a date on or prior to the completion date, and • the parties have agreed in writing in the Agreement that the supply is a supply of a going concern for the purposes of the GST Act. Accordingly, the supply of the items in respect of the enterprise of operating the Asset by Entity A to Entity D is a GST-free supply of a going concern as it meets all of the requirements of section 38-325.