Will buying or selling a business leave you exposed to GST? – Part 2

In my last Bulletin, I outlined the conditions you need to satisfy for GST free status when buying or selling an enterprise, and how to work out whether what you are buying or selling qualifies as an enterprise.

One of the conditions I also canvassed for GST exemption was that an enterprise needs to be sold as a ‘going concern’. You may recall that for a sale to qualify as a going concern, all of the things necessary to carry on the enterprise must be transferred to the buyer.

Today, I intend to focus on precisely what you need to transfer in order to satisfy this requirement.

According to the ATO, the following items are necessary for a buyer to carry on the operation of an enterprise:

1. The assets you need to carry on the enterprise, such as premises, plant and equipment, trading stock and intangible assets such as goodwill and licences.

2. The operating structure and processes of the enterprise, such as existing contracts, IT systems, customer databases, procedures manuals and the like.

It is important to note that employees are not included in either of these categories. Often you will not have a transferrable contract with your employees; therefore you do not have to transfer employees across to a new employer when trying to sell an enterprise.

You also do not have to transfer licences if the licence is personal to the individual who runs the business. However, if the potential buyer is unable to obtain a relevant licence themselves, then you will have been deemed not to have transferred all things necessary for the continued operation of the enterprise. The sale will therefore not be deemed to be a supply of a going concern.

If you would like further information on when the supply of a going concern is GST free, you can access the ATO’s ruling on the topic here.

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Tags: GST