Buying or Selling a Business as a Going Concern

GST would normally be payable on the sale and purchase of a business.

However, if a business is sold as a 'going concern', the sale is exempt from the normal requirement that the seller charges and the buyer pays GST on the price. A going concern means a continuing enterprise.

Advantages for the Buyer & Seller
There are several advantages of using the going concern exemption.

• Firstly, this exemption removes the need for the purchaser to obtain additional funds to cover the GST that would otherwise apply.
• Secondly, there is a real stamp duty saving where the GST does not need to be charged on the sale.
  The reason for this is that the stamp duty is charged on a price which includes GST where GST is chargeable.
  The purchaser will therefore be benefited if the transaction is treated as GST-free.
• Thirdly, the seller may be able to claim GST credits on supplies where GST credits could not otherwise be claimed. An example of this is a residential building that is tenanted.
  A seller could claim GST credits on associated legal and selling expenses that would not otherwise be possible.

ATO View
A buyer and seller may agree the sale is a sale of a going concern but the ATO may disagree with the parties.

To avoid this problem:

• Include a clause in your sale contract ensuring the buyer is liable for the GST and penalties
  OR
• Seek a private ruling from the ATO beforehand

Fur further advice in relation to the operation of the going concern provisions
Call Tony Martin or Don Blackwell

Top of Page Technical Articles