Private ruling: GST and supply of a going concern
Date of advice: 5 December 2016
Published: May 2017

Ruling: Q1: Is the transfer of the assets and liabilities from Company A to Company B a GST-free supply of a going concern in accordance with section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the transfer of the assets and liabilities from the Company A to Company B is a GST-free supply of a going concern in accordance with section 38-325 of the GST Act.

Relevant facts and circumstances: Company A is a foreign company that is carrying on an enterprise in Australia. Company A is registered for GST. Company B is a foreign company that is carrying on an enterprise in Australia. Company B is registered for GST. Company A and Company B entered into a Transfer Deed (“the Deed”) to transfer the assets and liabilities of Company A to Company B. The term “assets” means all the property, rights and assets of Company A for the purposes of carrying on and conducting the business including the intellectual property, goodwill, business records, IT systems, business information, fixed assets, moveable assets and receivables. In consideration for the transfer of the assets by Company A to Company B, Company B will pay Company B an amount equal to the assets value. The term “liabilities” to be assumed by Company B means any and all liabilities of Company A that have or may in the future arise in respect contracts entered into by Company A. In consideration for the assumption of the liabilities by Company B, Company A will pay Company B an amount equal to the value of the assumed liabilities. The leased premises will be novated or transferred to Company B depending upon the terms of the lease in accordance with the relevant state property legislation. All service contracts entered into by Company A will be transferred to Company B. Both Company A and Company B are registered for GST. The parties have agreed in writing that the supply is of a going concern and that Company A will carry on the 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: Subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 of the GST Act 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 under section 195-1 of the GST Act). | Detailed Reasoning - Subsection 38-325(2) of the GST Act: Supply under an arrangement Paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2002/5 explain what is meant by 'supply under an arrangement'. The term 'supply under an arrangement' includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement. The supplier and the recipient may identify the arrangement and the supplies under the arrangement in the written agreement which is required under subsection 38-325(1) of the GST Act or in any other written agreement that relates to the arrangement entered into on or prior to the day of the supply. In this case, Company A entered into an arrangement with Company B under which Company A shall transfer all its assets and liabilities. The Transfer Deed evidences the supplies to be made by Company A under the arrangement. Supplier supplies all of the things necessary for the continued operation of an enterprise Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by the supplier. This is the enterprise for which the supplier must supply to the recipient all the things that are necessary to carry on the enterprise so that the recipient is put in a position to carry on the enterprise. An enterprise is defined in section 9-20 of the GST Act to include an activity, or series of activities, done in the form of a business. Company A is carrying on an insurance business. This is the identified enterprise for the purpose of subsection 38-352(2) of the GST Act. The things which are necessary for the continued operation of an identified enterprise will vary according to the nature of the enterprise and the things supplied. Paragraphs 74 and 75 of GSTR 2002/5 state: 74. 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 in a position to carry on the enterprise if it chooses. 75. Two elements are essential for the continued operation of an enterprise: ● the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and ● the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion. Where particular premises are necessary for the continued operation of an enterprise, these premises must be supplied. Where the supplier carries on its enterprise 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. Based on the information provided, Company A supplied all the things that are necessary for the continued operation of its enterprise and Company B will be in a position to carry on that enterprise as Company A shall transfer the following to Company B under the agreement: ● all the property, rights and assets of Company A including the intellectual property, goodwill, business records, IT systems, business information, fixed assets, moveable assets and receivables; ● all rights and benefits of Company A under and in respect of contracts; ● properties leased by Company A; and ● all service contracts entered into by Company A. Supplier carries on the enterprise until the day of the supply A supply under an arrangement will only be the supply of a going concern where the enterprise is carried on by the supplier until the day of the supply. All activities must be active and operating on the day of the supply. The activities must be capable of continuing. The Deed provides that Company A will carry on the enterprise until the day of supply. Therefore, the transfer of the assets and liabilities by Company A is a supply of a going concern under subsection 38-325(2) of the GST Act. The next step is to consider subsection 38-325(1) of the GST Act. | Detailed Reasoning - Subsection 38-325(1) of the GST Act: From the information received, all the requirements in subsection 38-325(1) of the GST Act are satisfied as: ● the transfer of the assets and liabilities by Company A is for consideration; ● Company B is registered for GST; and ● the Deed contains Company A and Company B's agreement that the transfer of the assets and liabilities is a supply of a going concern. Accordingly, the transfer of the assets and liabilities of Company A under the Deed with Company B is a GST-free supply of a going concern as all the requirements in section 38-325 of the GST Act are satisfied.