Australia: GST and the supply of a going concern in a sale of a business transaction

Last Updated: 9 August 2017
Article by Peter Stewart

It's 17 years since the introduction of the Goods and Services Tax (GST), but the 'going concern' exemption still causes some confusion amongst parties in a sale of a business transaction.

In this article, we briefly revisit the 'going concern' exemption, the criteria that need to be met to qualify for that exemption and the merits of supplying a 'going concern'.

What is the going concern exemption?

A 'going concern' for the purposes of GST law refers to an enterprise's ability to continue functioning after the date of supply. If the supply of an enterprise is deemed to be the supply of a 'going concern', then the supply of that enterprise is GST exempt.

The purpose of seeking the 'going concern' exemption is so that the buyer of the 'going concern' enterprise does not have to provide the additional funds up front to cover the GST on the amount payable for the supply of the enterprise.

If GST does apply, the buyer will generally be required to pay an additional 10% of the purchase price at completion of the transaction to cover the GST. Although the buyer will be entitled to recover the GST through the input tax credit system, the buyer will generally not be able to do so until well after completion.

Where business assets the subject of the purchase reside in a state that still imposes duty on the transfer of business assets, that duty will generally be payable on the GST inclusive amount of the purchase price.

What are the requirements for a going concern exemption?

The GST Act provides that the "supply of a going concern" is GST-free where each of the following is satisfied:

  • The sale is for consideration.
  • The buyer is registered or required to be registered for GST.
  • The parties have agreed in writing that the supply is a supply of a going concern.

A written agreement, commonly known as a "sale of business contract", must be entered into on or before the transfer of the going concern enterprise. Normally, the written agreement would specify that the supply (i.e. the enterprise) is a going concern before the contracts are exchanged. This is an important aspect of the transaction because it shows that all involved parties expressly acknowledge that the business is a 'going concern'.

The seller must supply all of the things that are necessary for the continued operation of an enterprise. This requirement does not mean that absolutely everything currently used in the business of the seller must be transferred, but to qualify for the exemption, the buyer must acquire all those things without which the particular enterprise being acquired could not function. Generally, this includes assets such as premises, plant and equipment, stock in trade and intangible assets such as customer contracts and goodwill. The argument for a 'going concern' exemption may be strengthened by the contracting with key personnel from the enterprise being supplied.

The seller must also carry on the enterprise until the day of the supply. The supply is transferred on the date on which effective control and possession of the enterprise is transferred to the buyer. This date generally refers to the settlement or completion date, however on occasions it may occur before or after the settlement date.


Regardless of whether you are a buyer or seller in a sale of business transaction, it pays to have a clear understanding of your legal rights and responsibilities from the outset.

Notwithstanding the advantages a buyer gains in terms of cash flow and possible stamp duty savings from the 'going concern' exemption, the risk that the ATO may not view the transaction as a supply of a 'going concern' ultimately lies with the seller because even if the sale of business contract provides that the buyer is liable for any GST it is the seller that is required to remit the GST to the ATO.

For the above reason, a seller should include a carefully constructed indemnity clause in the sale of business contract requiring the buyer to indemnify the seller for any GST that may be payable in the event that the ATO does not view the sale transaction as a GST free going concern.

The ATO's GSTR2002/5 Ruling provides a comprehensive (and at times entertaining) overview of the ATO's view of particular transactions that may not easily be classified as supplies of a 'going concern' - for example when premises are not a necessary part of a business' ongoing operations or where the premises are supplied by a party distinct from the party supplying the balance of the business assets.

Where you encounter irregular circumstances such as the above, or where your ability to supply certain assets is limited under statute or contract, there is merit in discussing with your lawyer how best to treat such assets so as to minimise the risk of your failing to meet the 'going concern' exemption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Peter Stewart
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