Is a sale of my business a “going concern” and GST-free?

When buying or selling a business in Australia whilst negotiating a sale price, parties must turn their mind to the question of GST, the tax amounting to the 10% of the agreed purchase price in addition to the agreed price for the sale of the business.

Even though the parties are both registered legal entities and the ultimate outcome of GST being a neutral one, due to the purchaser paying GST and then receiving it back via their business activity statement and the Vendor receiving GST as part of the sale price and then paying it to the ATO, there may be difficulties for the purchaser to obtain the additional amount of money required to purchase the business at that time.

The sale of a business could be GST- free if the requirements of a “going concern”exemption under the GST Act 1999 could be satisfied. If considering the exemption, parties must do so prior to entering into a Contract for the sale of business. 

ATO provides a handy checklist to establish whether the said exemption applies to the particular transaction:

1. The sale must be for payment or consideration;
2. Both parties must be registered for GST;
3. The sale contract must note that the sale is a sale of a going concern;
4. The business sale must include everything that is necessary for the business to continue operating, including providing the premises from which the business operates; and
5. The business must operate until the day of sale.

If the above requirements can be met, it is very likely that the sale of a business is a “supply of going concern” and is GST-free. 

However, there are instances when a sale of a going concern exemption can be overruled. It is advisable to include a provision in the contract for sale whereby if the ATO deems the transaction to be treated as not a sale of a going concern, then the sale price should be increased by the amount of GST and the purchaser pays the GST amount in addition to the agreed sale price.

As an alternative, parties can always apply to the ATO for a private ruling to know the GST consequences of their transaction. A private ruling sets out the Commissioner of Taxation’s opinion about the way a tax law applies, or would apply, to the particular transaction and whether the sale of business can be classified as a supply of a going concern and GST-free.