A healthy part of HopgoodGanim's Tax and Revenue Law
practice involves advising clients and their advisors in relation
to the GST free going concern provisions.
In this Alert, Special Counsel Justin Byrne discusses the common
issues that arise in relation to the GST free going concern
The going concern exemption is attractive in that it provides a
cash flow advantage to the purchaser in not having to finance a GST
component of the purchase price, as well as there being a stamp
The following are some of the more common issues that arise from
time to time in relation to the GST free going concern
GST registration of both the vendor and the purchaser
Both parties need to be registered or required to be registered
in order for the going concern exemption to apply. From the
purchaser's perspective, it is important to have the vendor
warrant that they will still be registered for GST as at the date
of completion (which is when the supply is made for GST purposes),
otherwise the GST-free going concern exemption will not apply.
From the vendor's perspective, the requirement is that the
purchaser must be registered or required to be registered for GST
purposes as at the date of completion. Although the best position
is for the purchaser to be registered as at the date of contract,
it is not necessarily problematic if this is not the case provided
that there is evidence to show that either the purchaser has made
application to the ATO to become registered for GST (on a voluntary
basis or otherwise) or there is sufficient evidence to show that
the projected turnover of the purchaser would be such that it would
be required to be registered for GST in any event.
In terms of the drafting of the GST provisions in the contract,
where the going concern exemption is to be relied upon, there
should also be an additional GST clause allowing the recovery of
GST in instances where, for whatever reason, the GST free going
concern exemption does not apply.
The question often arises as to which employees, if any, are
being "transferred" as part of the sale. According to the
Commissioner's ruling (GSTR 2002/5), only "key"
employees are required to be transferred. Broadly, the Commissioner
considers that a key employee is, broadly, one without whom the
business could not function. For example, the one and only person
who is able to fully comprehend the IT system (integral to the
operation of the business) and to make adjustments to it, being the
person who created it, would be such an employee. That person would
need to be transferred to the purchaser under the sale.
Therefore, generally, a vendor should still be able to satisfy
the going concern exemption where relatively few employees are in
fact to be transferred to the purchaser (provided that those
employees transferred include all the "key"
Partly tenanted buildings
Unfortunately there is no clear indication as to what percentage
of a building needs to be tenanted if only one tenant occupies the
building. For example if two thirds of a commercial warehouse is
leased by one tenant, is that enough to satisfy the going concern
exemption? What if it was only one third of the building that was
being occupied? In multi-tenanted buildings, the Commissioner's
approach is that the going concern exemption will be available if
the owner of the building is at the time of sale actively seeking
tenants for those areas of the building not currently
Where premises are vacant immediately prior to, or even after
the contract has been signed, it is still possible for a tenant to
be put into the premises in order to satisfy the going concern
exemption. This tenant may also be a related party of the
It should be noted that stamp duty in the relevant State or
Territory is payable on the GST inclusive purchase price.
Therefore, if the GST going concern exemption is to apply, this
results in a lower GST inclusive purchase price and therefore a
lower duty amount. However, if the parties treat the supply as the
sale of a going concern and the ATO later contends otherwise, there
will be an increase in the duty liability. The GST clause in the
agreement should allow for this possibility by stating, for
example, that in such circumstances the purchaser will be liable
for the increase in duty.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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