Property

Going concern

A going concern is a business sold as an operating enterprise, and its sale can be GST-free if the buyer is registered and the seller supplies everything needed to keep operating, with a written agreement.

The sale of a business as a going concern can be GST-free. This concession exists because it would be unnecessary and costly to charge GST on a sale of an entire operating business, only for the buyer to claim it back as a credit shortly after. If the conditions are met, the sale has no GST, which helps cash flow and reduces paperwork.

The conditions are strict. The sale must be for consideration. The buyer must be registered for GST, or required to be registered, at the time of the sale. The seller must supply everything that is necessary for the continued operation of the enterprise, and must carry on the enterprise up to the day of the supply. And the seller and buyer must have agreed in writing that the sale is of a going concern, generally by the day of the supply. Missing any of these means GST is likely to apply.

The 'everything necessary' requirement is the usual point of dispute. It looks at what the business needs to continue, such as premises or a lease, stock, equipment, goodwill, contracts and any licences. If the seller keeps some of these back, or the buyer has to find a key element separately, the sale might not qualify. The same applies if the business has been shut down before the sale. Genuine continuity is the underlying concept.

Property is often part of a going concern. A sale of a pub, a motel or a farm with its business may include land and buildings, and the GST-free treatment can cover the whole package when the conditions are met. A transfer of only a building that happens to have a tenant is not necessarily a going concern, because the business of leasing is a different enterprise and tests apply, so it needs careful thought.

The seller still reports the sale on the BAS as a GST-free sale, and it counts toward GST turnover. The buyer, on the other hand, does not pay GST, so there is no credit to claim on the purchase. Both parties need to keep documents, including the agreement, to show the concession applied. If a sale is wrongly treated as GST-free, the seller can end up owing the GST, so getting it right matters.

Common mistakes are failing to put the going concern agreement in writing, or checking that the buyer is registered too late. A purchase by an unregistered buyer who is not required to register does not qualify, so the buyer's status needs to be confirmed. Another is assuming it applies automatically to any sale of business assets, when the sale of assets alone, without the operating enterprise, is generally taxable.

This is general information only. Because the concession depends on detailed facts, check your position with the ATO or a registered tax professional before treating a sale as GST-free.

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