Commissioner issues Decision Impact Statement for SDI Group Pty Ltd

Yesterday the Commissioner issued a Decision Impact Statement for the decision of the Tribunal in SDI Group Pty Ltd and Commissioner of Taxation [2012] AATA 763 where the Tribunal found that the applicant (vendor) and the purchaser of commercial property had satisfied the requirement that the parties agree that the sale was a supply of the going concern, notwithstanding that no such agreement was provided for in the Contract of Sale.  My post discussing the decision can be found here.

Before the Tribunal the Commissioner contended that the parties had not “agreed in writing” that the sale was the supply of a going concern, and that the tax invoice and Statutory Declaration prepared by the vendor referring to the sale being of a going concern were “unilateral documents”.  The Tribunal found in favour of the applicant on the basis that there was sufficient evidence that the applicant and purchaser agreed in writing that the supply involved a going concern.

In the Decision Impact Statement the Commissioner accepts that the finding of the Tribunal was open on the evidence and considers that the decision does not differ in principle from the requirements in GSTR 2002/5 ‘Goods and services tax: when is a ‘supply of a going concern’ GST-free.  Paragraph 181 of the Ruling states as follows:

The term ‘agreed in writing’ means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of the enterprise, is a ‘supply of a going concern’.

Before the Tribunal, the concern of the Commissioner appeared to be that the applicant could not point to a document evidencing an agreement in writing which was signed by the purchaser, the only documents available having been prepared and executed by the supplier.  The Decision Impact Statement deals with the finding of the Tribunal that the parties nevertheless “agreed in writing” that the sale was of a going concern as follows:

The ATO believes that it is the Tribunal’s view that, at the time the recipient executed the contract, the parties intended and agreed in writing that the supply was of a going concern.  Further, by the time of settlement, the parties had confirmed, through further correspondence, that intention.

We also believe that the decision does not support a view that unilateral documents are sufficient to constitute an agreement in writing as contemplated by paragraph (c) of subsection 38-325(1) of the GST Act.

I would agree with the Commissioner’s view that “unilateral documents” are not sufficient to constitute an agreement in writing.  However, what the decision of the Tribunal does appear to establish (and is arguably accepted by the Commissioner in the Decision Impact Statement) is that it is not necessary that each party actually sign a written agreement that the sale is of a going concern and that a document prepared by only one party may be sufficient to “evidence” an agreement in writing.  This may particularly be the case where such a document is provided by one party to the other party prior to settlement – for example, a tax invoice, a statutory declaration for stamp duty purposes, a settlement statement or even simply a letter of confirmation from the vendor.

Tribunal finds that parties agreed in writing that a sale was of a going concern

On Friday the Tribunal handed down its decision in SDI Group Pty Ltd and Commissioner of Taxation [2012] AATA 763 where it found that the applicant (vendor) and the purchaser of commercial property had satisfied the requirement that the parties agree that the sale was a supply of the going concern, notwithstanding that no such agreement was provided for in the Contract of Sale.

The case is very much restricted to its facts, but the decision arguably conflicts with the Commissioner’s stated view in GSTR 2002/5 that the term “agreed in writing” in s 38-325 means “that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply…is a supply of a going concern”.  This is because there was nothing actually signed by the purchaser to the effect that the agreement was the supply of a going concern, and the Tribunal found that it in the particular circumstances certain “unilateral documents” under the hand of the vendor were sufficient.

The facts can be summarised as follows:

  • in December 2009 the applicant and the purchaser executed a contract of sale for the sale of commercial property. At the time there was a tenant of the property on a monthly lease – the contract was expressly subject to the lease.  The Contract did not refer to the property being a going concern.
  • After the contract was signed, there was a dispute between the parties as to whether the sale was a going concern due to there being a only a monthly lease only.
  • Prior to, or at settlement, the applicant provided the purchaser with a tax invoice which contained the words “NO GST (SOLD AS A GOING CONCERN)” and a Goods Statutory Declaration in which the Box was ticked “Yes” in answer to the question “Does the contract relate to the sale of a going concern?”

The Commissioner contended that the parties had not “agreed in writing” that the sale was the supply of a going concern, and that the tax invoice and Statutory Declaration were “unilateral documents”.

The Tribunal found in favour of the applicant on the basis that there was sufficient evidence that the applicant and purchaser agreed in writing that the supply involved a going concern – indeed the Tribunal found that the parties had “incorporated an agreement in writing that the supply involved a going concern”.  The requirement for the agreement to be “in writing” was satisfied by a combination of the contract of sale, the tax invoice and the Statutory Declaration.

The Commissioner’s concern appeared to be that the applicant could not point to a document evidencing an agreement in writing which was signed by the purchaser – the Commissioner accepts that such an agreement need not be found exclusively in the Contract of Sale. One way of looking at the Tribunal’s decision is that by the purchaser proceeding with settlement after receiving the tax invoice and the Statutory Declaration, that the purchaser, by conduct, agreed that the sale was of a going concern in accordance with those documents.  Such an agreement is arguably still an agreement “in writing”, as it is evidenced by the written terms of the tax invoice and the Statutory Declaration. It remains to be seen whether the Commissioner appeals the decision on the basis that an agreement will only be “in writing” where a document evidencing the agreement is executed by both parties.