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Buying or Selling a Business as a Going Concern |
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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
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- 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
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+ 61 8 8333 1944
