Avoiding GST in a Sale of Business

Meaning that the purchaser is paying some value for the business.

Notwithstanding sale of business contracts generally provide that the purchaser is liable for any GST payable, it is the vendor that is required to remit the GST to the tax office and therefore, has the burden of the risk that a transaction may not be viewed as the supply of a going concern. The vendor’s solicitor should, therefore, ensure the purchaser is registered for GST.

The requirement for a written agreement between the parties needs to be satisfied prior to the completion of the sale. While it is possible to record a transfer after the fact, for example if a business has been restructured to a related entity the parties may look to document the transfer at a later date, such a transfer would not satisfy the ‘going concern’ exemption. As such, prior to any restructure, you should always seek advice from your accountant and lawyer so that taxation and asset protection matters can be properly considered and dealt with prior to a transfer completing.

All things necessary for the continued operation of the business does not mean that absolutely everything in the business must be transferred, but refers to those things which make the business function in its normal course. Each business will require different things for its continued operation, but typically the following should be included in the sale of business:

1. the tangible assets such as the plant and equipment,
2. the intangible assets such as goodwill, intellectual property and critical contracts,
3. premises for the operation of the business, and
4. the operating structure and processes of the business.

Of note, the above provisions relate to the transfer of activities that may not traditionally be thought of as a business, including leasing, licensing, trading operations or charitable activities.

If the business being sold is part of a bigger enterprise, it is critical that the vendor and purchaser make sure the business being sold is capable of operating independently from the main enterprise, and namely that all things necessary for the continued operation of the business are transferred in the sale. In order for this to occur, there may well need to be additional documentation and agreements that come into effect at the time of completion, such as a new lease or a license agreement.