What is the “going concern exemption” to GST?

What is the “going concern exemption” to GST?

The “going concern exemption” to Goods and Services Tax (GST) refers to a provision that exempts supplies of goods or services made in the course of carrying on a business if the goods or services are supplied as part of a transfer of a going concern.

A “going concern” is defined as a business that is capable of being carried on without significant interruption or change, including the transfer of all necessary assets and licenses. This exemption ensures that GST is not imposed on supplies made when a business is being transferred from one owner to another, as long as the business is being sold as a whole and the new owner intends to continue carrying on the business in its existing form.

How does the “going concern exemption” apply to the sale of commercial property?

The “going concern exemption” applies to the sale of commercial property when the property is sold together with a business that is being carried on at the property. In this case, the supply of the property is considered to be part of the transfer of the going concern, and is therefore exempt from GST. The exemption applies if the following conditions are met:

1. The property and the business must be supplied together as a single supply.
2. The buyer must be acquiring the business with the intention of carrying on the business.
3. The seller must have been carrying on the business before the sale, and the buyer must take over the business without significant interruption or change.
4. The buyer must provide a written declaration to the seller, confirming that they are acquiring the property and the business for the purpose of continuing the business.

The business in this context includes the business of being the landlord and managing investments property as a landlord. If the commercial property is a fully tenanted building, all leases, agreement and covenants must be included in the sale.

If these conditions are met, the sale of the commercial property, as part of the transfer of the going concern, is exempt from GST. However, if the commercial property is sold separately from the business, or if the buyer does not intend to continue the business, the sale of the property will not be exempt from GST.

Can you provide examples of the “going concern exemption” as they relate to the sale of commercial property?

Yes, here are a few examples of how the “going concern exemption” applies to the sale of commercial property:

1. A restaurant owner is selling their property along with their restaurant business. The buyer intends to continue operating the restaurant in the same manner as the previous owner. The sale of the property, as part of the transfer of the restaurant business, would be exempt from GST under the going concern exemption.
2. A hotel owner is selling their hotel property along with their hotel business. The buyer intends to continue operating the hotel as a going concern. The sale of the property, as part of the transfer of the hotel business, would be exempt from GST under the going concern exemption.
3. The owner of commercial property is selling their property along with a tenant who is leasing the premises. The sale of the commercial property, as part of the transfer of lease with the tenant, would be exempt from GST under the going concern exemption.
4. A property owner is selling their commercial property, but the buyer does not intend to continue any business that was being carried on at the property. In this case, the sale of the property would not be exempt from GST under the going concern exemption, as the buyer is not acquiring the property as part of a going concern.

In each of these examples, it is important to note that the going concern exemption only applies if the sale of the commercial property and the business are made as a single supply, and if the buyer intends to continue the business without significant interruption or change.

What about when commercial property is sold subject to a lease? Does an existing lease on the sale of commercial property satisfy the going concern exemption?

Yes, an existing lease on the sale of commercial property can satisfy the “going concern exemption” to Goods and Services Tax (GST) if certain conditions are met. The sale of the commercial property, subject to the lease, can be exempt from GST if the following conditions are met:

1. The property and the lease must be supplied together as a single supply.
2. The buyer must be purchasing the property subject to an ongoing lease. The tenant of the premises must continue carrying on the business being conducted under the lease.
3. The seller must be selling the property subject to an ongoing lease, and the buyer must take over as landlord subject to a tenant with the tenant carrying on the business from the premises without significant interruption or change.
4. The parties agree in writing that the sale is a going concern (generally by way of a Special Condition in the contract of sale to this effect).

If these conditions are met, the sale of the commercial property, subject to the lease, as part of the transfer of the going concern, is exempt from GST. However, if the commercial property is sold without the lease, or if the buyer does not intend to continue the business being conducted under the lease, the sale of the property will not be exempt from GST.

What documents are required to evidence that the sale of commercial property was subject to the going concern exemption?

To evidence that the sale of commercial property was subject to the “going concern exemption” to Goods and Services Tax (GST), the following documents are typically required:

1. A written agreement between the buyer and the seller, confirming the sale of the commercial property and the business as a single supply.
2. A written declaration from the buyer, confirming that they are acquiring the property and the business for the purpose of continuing the business, and that they intend to carry on the business without significant interruption or change.
3. Proof of the business being carried on at the property, such as such as financial statements, tax returns, and other business records.
4. Proof of the transfer of assets and licenses necessary for the continuation of the business.
5. Any other relevant documentation, such as a lease agreement, if the property is being sold subject to a lease.

It is recommended you seek professional legal and tax advice to ensure that the sale of the commercial property complies with the going concern exemption and all relevant documentation is in order.

Need assistance with the purchase or sale of your commercial property? Contact our team on (03) 8590 8370 to obtain legal advice from our expert property lawyers and conveyancers. We can assist you with your commercial conveyancing transactions.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.