Selling a Business as a Going Concern and GST Exemptions
When selling a business, generally you will be liable to pay Goods and Services Tax (GST). However, in some cases, you can be exempt from paying GST for example, where the sale of the business is as a going concern. This article will outline what a sale of business as a going concern is and considerations that you should take into account if you intend to sell your business.
Selling as a Going Concern
What is a going concern?
When a company is sold as a going concern, the seller (vendor) will sell the business to the buyer with everything that is necessary to continue operating the business. The vendor will continue to operate the business until settlement, which is when the buyer becomes the owner of the business.
When will a Going Concern GST exemption apply?
If a business is sold as a going concern, the seller will be exempt from paying GST if all of the following criteria are satisfied:
- There has been payment for the sale of the business;
- The buyer is registered for GST;
- The buyer and vendor have agreed in writing that the sale is as a going concern;
- The vendor provides everything required for the continued operation of the business; and
- The vendor continues to operate the business until the settlement date.
Further Considerations When Selling a Business as a Going Concern
Sale of Business Agreement
If you are going to sell your business as a going concern, it is important that your sale of business agreement states this, and what will be included as part of the sale.
The vendor must continue to operate the business until the settlement date. This should be stated in the sale of business agreement as a condition precedent to the sale. That way a failure to comply will be a breach of the contract. There are two aspects to this:
- The vendor must continue to be in possession of the business; and
- The vendor must continue to run the business as a going concern.
Legal and Tax Advice
Given that GST and the going concern exemption can be a complex process, it may be useful to obtain advice from a commercial lawyer with experience in the sale or purchase of a business. A commercial lawyer can assist you in preparing a sale of business agreement with all the appropriate clauses. Furthermore, they can help you to determine what needs to be put in place to ensure that the sale of business qualifies as a going concern for GST purposes so that the GST exemption applies.
It is also important to seek advice from a tax professional before selling a business. Tax professionals will be able to guide you through the various financial considerations that come about from selling your business, including other taxes that may apply, as well as how the price of the business can be divided proportionally amongst the assets of the business and goodwill. For example, if you make a profit on the sale, you may be liable to pay capital gains tax.
Tax professionals can also help you to complete and submit the supporting information that the Australian Tax Office requires to determine what the GST consequences are for the sale of the business. The supporting information required can be found on this link.
- If you are going to sell your business, consider whether you want to sell it as a going concern.
- For the business sale to be exempt from GST, you will need to ensure that all of the legal conditions have been met.
- Ensure you seek advice from legal and tax professionals throughout this process.
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