Private ruling: GST and supply of a going concern
Published: December 2013

Ruling: Q1: Is the sale of your business and assets a GST-free supply of a going concern? | A1: Yes, the sale of your business and assets is a GST-free supply of a going concern.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You carried on a business of providing services to a particular industry (the business). You entered into a Business Sale Deed (the agreement) with another entity (the purchaser). Under the agreement, you supplied to the purchaser the business and the assets used for and connected with the business for a specified amount. The assets included: · Goodwill - contracts, client lists and records, market research, sales literature, brochures, advertisements, promotional materials and other publications; · Plant and equipment - plant, equipment, machinery, furniture, fixtures and fittings together with stationery, signs, stamps, consumables, spare parts, tools and other maintenance items, uniforms and canteen office supplies; · Motor vehicles - as enumerated in the agreement; · Intellectual property - trademarks, confidential information, patents and patent applications, drawings, discoveries, inventions, improvements, trade secrets, technical data, formulae, computer programs, databases, know-how, logos, emblems, brand names, designs and design rights, copyright and similar industrial or intellectual property, licence or other right to use intellectual property, computer software, all accounting, invoicing, debt control, credit control computer records, software and ancillary data systems, and domain name; · Authorisations of a government agency (where capable of assignment) - approval, consent, declaration, exemption, notarisation, licence, quota, permit or waiver and any condition attached to it; · Records - all original or copy books, ledgers and other financial records, records of sales and purchases, records of the assets, lists of customers and suppliers, and all other materials, books, records, files, plans, correspondence, reports and documents (in paper or electronic form); and · Work-in-progress - all work in progress calculated at the completion date. Your assets that were not used in the business were excluded from the sale. Some assets used in the business were also excluded from the sale because either: · they were rights or assets that were not capable of being assigned to the purchaser; or · they were assets that were not necessary for the continued operation of the business such as cash at hand or on deposit, security deposits, trade debts, and a motor vehicle that has become obsolete at the completion of the agreement. You operated the business from an office located in Australia (the business premises) which you leased from a related entity (the lessee). On completion of the agreement, you procured from the lessee a new lease of the business premises in favour of, and in terms agreed by, the recipient. You used storage units in a number of locations. The purchaser took possession of the storage units under arrangements made directly with their owners. These particular storage units used by you were not necessary for the continued operation of the business as the business could be operated by the purchaser without them. Other storage units could equally have been utilised for that purpose. The purchaser has offered the employees specified in the agreement employment in the business. Under the agreement, you must use reasonable endeavours to ensure each employee accepts the purchaser's offer of employment. Furthermore, you must release the employees (who accepted the offer) from their service and give the purchaser complete and accurate details of their accrued entitlements and length of service with you. The agreement provides that: · you and the purchaser agree that the supply made under the agreement is a supply of a going concern; · the purchaser warrants that it is registered or required to be registered for GST; and · you believe that you are supplying all of the things necessary for the continued operation of the business and agree that you will continue to operate the business until the day of supply. The agreement provides that, on completion, you must give the purchaser: · title to the business and the assets; · absolute ownership of the business and the assets; and · possession and control of the business and the assets.

Relevant legislative provisions: 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 and | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

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 that the supply is 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 (a) 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 - 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, you entered into an arrangement with the purchaser under which you supplied the business and the assets used in the business. The Business Sale Deed (the agreement) evidences the supplies to be made by you under the arrangement. | Detailed Reasoning - 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 of 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. You carried on a business of providing services to a particular industry. This business is the identified enterprise for the purpose of subsection 38-325(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, you supplied all the things that are necessary for the continued operation of its enterprise and purchaser was in a position to carry on that enterprise as you supplied to the purchaser the following under the agreement: · goodwill, plant and equipment, furniture and fixture, motor vehicles; · intellectual property, authorisations and licences · benefits of contracts · books, ledgers and financial records · lease of the premises | Detailed Reasoning - 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. On the basis that the agreement required that you continue to carry on the enterprise until the day of supply, this requirement is satisfied. Therefore, the sale of the business and the assets by you is a supply of a going concern under subsection 38-325(2) 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 business and assets by you is for consideration being the purchase price specified in the agreement; · is registered for GST; and · the agreement provides that you and the purchaser agree that the sale of the business and assets is a supply of a going concern. All the requirements in section 38-325 of the GST Act are satisfied. Accordingly, the sale of the business and assets by you to the purchaser is a GST-free supply of a going concern.