Private ruling: GST and supply of going concern
Date of advice: 3 June 2021
Published: August 2021

Ruling: Q1: Is the sale by Entity A (as Seller) to Entity B (the Buyer) of its Assets and the Business under the Asset Sale Agreement (Agreement) a GST- free 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 the Seller to the Buyer of the Assets and the Business under the Agreement is a GST-free going concern under section 38-325 of the GST Act. In this case it is accepted that Seller supplies to the Buyer all the things necessary for the continued operation of the enterprise until the date of the supply notwithstanding that some items (the Excluded Assets) are not provided. Relevantly, consistent with the view in paragraphs 83 to 86 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) we accept that in the absence of the Excluded Assets the enterprise can still be carried on. Further consistent with paragraph 100 to 102 of GSTR 2002/5, as the leases will be procured and supplied to the Buyer on the day of supply, we accept that the Supplier has supplied all of the things necessary for the continued operation of the enterprise. As the remaining conditions in section 38-325 of the GST Act are also met, the supply of the Assets and the Business under the Agreement is GST-free.

Relevant facts and circumstances: Entity A (the Seller) was incorporated prior to 1 July 2000 and currently carries on a business as a supplier of products (Retail Business). The Retail Business involves the purchase of supplies from third parties and on selling of these to its customers. This business is conducted from business premises owned by the Seller. The business carried on by the Seller is being sold to Entity B (the Buyer) under the Asset Sale Agreement (Agreement). Under the Agreement it provides that: • the Seller carries on the Business and own or use the Assets in the Businesses. • The Seller has agreed to sell the Assets and the Business to the Buyer, and the Buyer has agreed to buy the Assets and the Business from the Seller, on the terms of the Agreement. Subject to the other terms of the Agreement, the Seller agrees to sell and the Buyer agrees to purchase all the Seller's rights, title and interests in Assets (including stock) and the Business in return for the purchase price. Effected through a joint stocktake by representatives of the Buyer and the Sellers, all acceptable inventories held at the business premises must be transferred to the Buyers on or before completion. Prior to the completion date, the Sellers are obligated to ensure the business is conducted in accordance with normal practice. The Buyer must offer to employ certain employees of the Sellers business when they are made aware of the sale and must employ those who accept their offer. In addition, it is a condition precedent to completion of the Agreement that certain key employees of the business accept an offer of employment with the Buyer. The Seller and associated significant shareholders and directors will be subject to a restrictive 'non-compete' covenant on completion and will not solicit, approach or deal with customers or employees from the Buyer. The parties to the Agreement acknowledge in the Agreement the supply constitutes a GST-free going concern, under which the Sellers are supplying the Buyer with everything necessary to the continued operation of the enterprise (the Retail Business) and the Seller will carry on the enterprise until the day of the supply. Ownership interests in the land and buildings in which the Business operates will not be transferred under the Agreement, however the Sellers agree to procure leases of the business premises to the Buyer. This is a condition precedent of the Agreement. The Buyer agrees to purchase the Assets of the Sellers which includes all Plant and Equipment except for excluded plant and equipment (Excluded Assets). The Excluded Assets are actively used in the business, however, are not necessary for the continued operation of the Retail Business. The Seller is registered for GST and has been since 1 July 20XX. The Buyer is registered for GST and has been since 1 July 20XX.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-325