How the GST Going Concern Exemption Works

Overview

The sale of a business as a going concern can be GST-free under Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This exemption is critical for business sales and commercial property transactions, and understanding the requirements is essential for both buyers and sellers.

This guide explains the conditions, practical steps, and common pitfalls of the going concern exemption.

1. Check Consideration and the Recipient's GST Registration

Section 38-325(1) requires consideration, a recipient registered or required to be registered for GST, and the parties' written agreement. Check the recipient's effective registration at the time of supply; an application alone may not suffice.

2. Ensure the Supply is of a Going Concern

A supply of a going concern means the supply of an enterprise that is carried on up to the day of supply. The seller must carry on the enterprise until the point of transfer. All things necessary for the continued operation of the enterprise must be supplied — this includes physical assets, contracts, licences, intellectual property, and goodwill.

3. Written Agreement Required

The parties must agree in writing that the supply is of a going concern. This is typically included in the sale contract. Without a written agreement, the exemption does not apply even if all other conditions are met.

4. Supply All Things Necessary

The supplier must supply to the recipient all of the things that are necessary for the continued operation of the enterprise. This does not mean every single asset — it means everything necessary. The ATO's guidance in GSTR 2002/5 provides detailed commentary on what is 'necessary'.

5. Carry On the Enterprise Until the Day of Supply

The enterprise must be carried on by the supplier right up to the day of supply (settlement). If the business ceases operations before settlement, the going concern exemption is jeopardised.

6. Review Settlement Records and Adjustment Rules

Record the basis for the GST-free treatment and review the contract and settlement documents. The recipient's intended or later use can engage Division 135 adjustment rules; seek transaction-specific review.

Worked Examples

Checklist

• Supply is for consideration and recipient is registered or required to be registered
• Written agreement that the supply is of a going concern
• Supplier carries on the enterprise until the day of supply
• All things necessary for continued operation are supplied
• Lease/licence assignments are completed
• Employee arrangements are addressed (transfer or termination)
• Settlement records support the treatment and any adjustment obligations have been reviewed

Common Pitfalls

• ⚠Seller ceases business operations before settlement — destroys the going concern status
• ⚠Failing to include a written going concern clause in the contract — the exemption requires it
• ⚠Not transferring all necessary assets (e.g., forgetting to assign a critical licence or lease)
• ⚠Buyer is neither registered nor required to be registered at the time of supply
• ⚠Treating the sale of bare commercial land as a going concern — land without an active enterprise is not a going concern