Great Opportunity to Buy Business for Sale in Sunshine Coast

In business sales, the Contract of Business Sale will specify if the sale qualifies for the GST Going Concern Exemption.  Whilst GST is effectively cost neutral due to input tax credits, the buyer usually wishes to lower their capital outlay, rather than providing additional funds to have to claim back.  This is perfectly understandable and in this scenario where the exemption is applied for, the seller will not charge GST on the sale of a business ors its assets.  However, vendors should not take it for granted that the exemption always applies as various criteria must be met.

 

Under s38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (“the GST Act”) the Going Concern exemption applies if the vendor transfers ‘all that is necessary’ to operate the business, to the purchaser.  However, the supply of a going concern is only GST free where the following criteria are satisfied:-

 

·         The sale is for consideration;

·         The purchaser is registered or required to be registered for GST;

·         The parties have agreed in writing that the supply is of a going concern;

·         The vendor supplies all of the things that are necessary for the continued operation of an enterprise; and

·         The vendor carries on the enterprise until the day of the supply

 

You will find that both parties will seek to ensure that all the above conditions are met where the Sunshine Coast Business for Sale Contract  (the written agreement) nominates the sale is a going concern.  So where you are selling a going concern, it should qualify for the GST exemption.  However, if it doesn’t, it is the vendor who is liable for the GST payable.  That is why the standard terms of a Business Sale Contract require the buyer to indemnify the vendor for any GST that may become liable, including penalties (refer s3.3, s3.5).

 

Sometimes disputes arise as to whether the GST exemption covers Stock-in-Trade.  Firstly, under the standard contract conditions, s3.3 states that if GST is ‘imposed’ on the supply of the business, the buyer must pay the GST.  Secondly, the contract refers to the buyer purchasing the stock at ‘landed invoice cost’.  Upon consideration of both these clauses, if the vendor has paid GST on the stock already, the buyer will pay GST on the stock.  However, the vendor can agree to provide the stock GST-exempt and claim back the GST input credit but the buyer must warrant to pay the GST, if the vendor becomes liable (see s3.5).  Where GST is charged, the vendor must supply a ‘Tax Invoice’ stating the GST amount.

 

Sections 38-325 of the GST Act also state that no additional stamp / transfer duty will be payable, as it otherwise would be on the GST component if GST were applicable.  Additionally, the exemption also negates the need for separately valued assets and chattels which comprises the business sale.  Under Tax Law, both sides do not need to agree on asset values which is why the ‘Apportionment of Purchase Price’ section of the Business Sale Contract is left blank intentionally.  This will be completed by the parties to their respective tax advantage.

 

Finally, be careful when it comes to selling licences and franchise territories, even ‘turnkey’ operations.  Whilst ‘all things necessary’ might be supplied in order to operate the business, the business is not ‘carried on’ or ‘continued’ because it has not been trading yet.  However, if an established franchise is now changing ownership, the exemption is likely to apply.

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