Private ruling: GST-fee supply of a going concern
Date of advice: 31 March 2016
Published: May 2016

Ruling: Q1: Was the supply by Entity B to the Purchaser on completion of the Business Contract 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 by Entity B under the terms of the Business Contract was a GST-free supply of a going concern because all the requirements of section 38-325 of the GST Act were satisfied as follows: • Entity B carried on an enterprise of granting of a licence to operate the Business, which was capable of being supplied as a going concern for GST purposes • Entity B sold to the Purchaser the goodwill of the Business and other Licensed Assets and its rights under the Business Licence. As such, Entity B supplied to the Purchaser all of the things that are necessary for the continued operation of the identified enterprise under paragraph 38-325(2)(a) of the GST Act • Entity B continued to carry on the enterprise until completion of the Business Contract and satisfied the requirement under paragraph 38-325(2)(b) of the GST Act, and • the supply is for consideration, the Purchaser is registered for GST and both parties agreed in writing that the supply is of a going concern, satisfying the requirements of paragraphs 38-325(1)(a), 38-325(1)(b) and 38-325(1)(c) of the GST Act.

Relevant facts and circumstances: Entity B granted entity A a licence to operate the Business on the terms of the Business Licence. The Business Licence confirms that Entity B, the owner of the Business, has granted Entity A an exclusive licence to use the assets and to operate the Business and a Licence Fee is payable The business premises are leased from an unrelated third party. Under the terms of the Business Contract, Entity A agreed to sell assets it owns and used in carrying on the Business including its rights under the Business Licence. Entity B agreed to sell the goodwill of the Business and other Licensed Assets and its rights under the Business Licence on the terms set out in the Business Contract. The Business Contract contains the following clauses: Entity B and Entity A (Vendors) agree to sell and the Purchaser agrees to purchase the Business Assets on the Completion Date. The Business Contract outlines how the Purchase Price is calculated. The Vendors must remain in possession of the Business Assets and will continue to manage the Business as a going concern up to and including the Completion Date. The Vendors must apply to the Lessor to grant a lease to the Purchaser at Completion as and from Completion on terms acceptable to the Purchaser. The Vendors and Purchaser must do all things and assign all documents that may reasonably be required to procure the granting of the lease and any necessary consents. The Vendors assign their respective rights under the Business Licence to the Purchaser as and from the Completion Date. The Vendors and the Purchaser agree that the sale of the Business Assets owned by Entity B together with the assignment of their respective rights under the Business Licence constitutes the supply of a going concern as defined in the GST Act. The Vendors covenant that they will continue to carry on the going concern until the Completion Date. Completion of the agreement is subject to completion of the Interdependent Contracts and must be effected contemporaneously with the completion under the Interdependent Contracts. Completion of the Business Contract occurred recently. Entity B carried on their leasing/licensing enterprise up to the completion date. Entity B, Entity A and the Purchaser are all registered for GST.

Relevant legislative provisions: 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).