1 Will the supply of your interest in the supply under an agreement, constitute a GST-free supply of a going concern for the purposes of section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes. This ruling applies for the following period(s) XX Month 20XX The scheme commenced/s on 1 July 20XX - 30 June 20XX
The entity is registered for GST. The entity is an entity in the Group. The entity, through a joint venture, conduct activities and are currently involved in a joint venture with an xx% interest in the assets. The group is undertaking a transaction. The sale of the assets, which consists of your xx% interest in the enterprise. On a specified date, the entity entered into an agreement to sell its interest in the enterprise. The assets in the agreement includes the assets used in the course of your joint venture activities with respect to the enterprise, including all contracts, certain property, inventory, etc. The agreement provides that both you and purchaser agree that the supply will be a GST-free supply of a going concern. The purchaser will replace the entity as a joint venture party in respect of the enterprise. The purchaser will be registered or required to be registered at the time of the sale completion. The supply will be for consideration, being the purchase price stated in the agreement.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 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
Issue Question In this reasoning, please note: • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act Subsection 38-325(1) provides that the supply of a going concern is GST-free if: a) the supply is for consideration b) the recipient is registered or required to be registered for GST, and c) the supplier and the recipient have agreed in writing that the supply is of a going concern. Based on the facts supplied, the requirements of subsection 38-325(1) will be satisfied. Therefore, where the supply meets the requirements of subsection 38-325(2) it will be a GST-free supply of a going concern. Subsection 38-325(2) provides that 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 the larger enterprise carried on by the supplier). 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) explains at paragraph 19 that the term supply under an arrangement includes a supply under a single contract or supplies under multiple contracts which comprise a single arrangement provided the things supplied relate to the 'identified enterprise'. The supply of the enterprise, from you to the purchaser under the agreement, constitutes a supply under an arrangement. Identified enterprise GSTR 2002/5 provides guidance on the requirements to be met for a supply to be a GST-free supply of a going concern.
Paragraph 29 of GSTR 2002/5 explains that subsection 38-325(2) requires the identification of an enterprise that is being carried on by the supplier (the 'identified enterprise'). The identified enterprise must meet the requirements of subsection 38-325(2). You are a joint venture participant in the identified enterprise and the requirements under paragraphs 38-325(2)(a) and 38-325(2)(b) must be satisfied in relation to this enterprise for there to be a sale of a going concern. Paragraph 195 of GSTR 2002/5 states: 195. Whether or not a business structure is a joint venture is a matter of fact. If the business structure is a joint venture, then each joint venturer is an entity which is capable of conducting an enterprise. Provided that all of the requirements of section 38-325 are satisfied, it is possible for a joint venturer entity to make a GST-free 'supply of a going concern'. This may be when part or all of the enterprise conducted by the joint venturer is supplied, provided that what is supplied is all of the things that are necessary for the continued operation of the 'identified enterprise'. You are transferring your entire interest in the joint venture to the purchaser.
Supply of all things necessary for the continued operation of an enterprise Paragraph 75 of GSTR 2002/5 identifies two elements that are essential for the continued operation of an enterprise: • the assets necessary for the continued operation of the enterprise • the operating structure and process of the enterprise. It is clear from paragraph 75 of GSTR 2002/5 that what is transferred must be more than the business assets of an identified enterprise. Paragraph 80 of GSTR 2002/5 states: 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. In acquiring the interest in the assets, the purchaser is acquiring more than a specified percentage of interest in the identified enterprise. The purchaser will be acquiring an interest in the assets, contracts, inventory, and the existing operating structure of the venture comprising the relevant contracts including the operating agreement.
You will supply to the purchaser all of the rights and assets necessary for the continued operation of the identified enterprise, as the purchaser will acquire a beneficial interest in all of the Venture Property. Based on the information provided, you will supply to the purchaser the two elements essential for the continued operation of the identified enterprise, being an interest in the assets and operating structure. In acquiring your interest, the purchaser is in a position to carry on an enterprise. Supplier carries on enterprise until day of supply Paragraph 141 of GSTR 2002/5 advises that 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. Paragraph 161 of GSTR 2002/5 explains that the day of supply is the date on which the recipient assumes effective control and possession of the enterprise carried on by the supplier. You will continue to carry on the identified enterprise until the day of supply being completion under the agreement.
As all the requirements for section 38-325 will be satisfied, the supply of your interest in the identified enterprise will be a GST-free supply of a going concern.