• Selling a going concern

    You are selling a 'going concern' if:

    • the sale includes everything that is necessary for the continued operation of the business
    • the business is carried on by you until the day of sale.

    Property that is part of a sale of a going concern can include any of the following:

    • the business premises, when sold together with the assets and operating structure of the business
    • a fully tenanted building, where the property and all leases, agreements and covenants are included in the sale
    • a partially tenanted building, where 
      • the vacant part of the building is either being actively marketed for lease or undergoing repairs or refurbishment
      • all leases, agreements and covenants are included in the sale.

    Generally, the sale of a property by itself cannot be regarded as a going concern.

    See also:

    GST consequences

    A sale of a going concern is GST-free if, in general, all of the following apply:

    • the sale is for payment
    • the purchaser is registered, or required to be registered, for GST
    • the purchaser and seller have agreed in writing that the sale is of a going concern.

    If property is part of a GST-free sale of a going concern:

    • you are not liable for GST on the sale
    • you and the purchaser may be able to claim GST credits on expenses that relate to your sale / purchase of the property – for example, the GST included in solicitor's fees.

    If a property is purchased as part of a GST-free supply of a going concern, but the purchaser then uses the property for a purpose other than to make taxable sales or GST-free sales, the purchaser may have to make an increasing adjustment. For example, the purchaser uses the property to make input-taxed sales of residential rent for private purposes.

    The amount of the increasing adjustment is usually worked out as follows:

    • 10% × the sale price × the proportion of non-creditable use.

    You may need to make subsequent increasing or decreasing adjustments if this proportion of non-creditable use changes over time.

    Example: Making an increasing adjustment for a going concern

    Michael, who is registered for GST, buys a newly built unit for $495,000 in the Seabreeze Resort Complex. The sale contract provides that the unit is sold subject to an agreement to lease the unit to the operator of Seabreeze Resort. The sale is treated as a GST-free supply as Michael is purchasing a leasing enterprise as a going concern. Michael has made a written agreement with the vendor that:

    • the sale would be a GST-free sale of a going concern
    • the lease would be assigned to Michael who, upon its expiry, would grant a new lease, under varied terms, to the operator.

    As Michael will be making an input-taxed supply of the residential unit to the operator, his use of the unit is for a non-creditable purpose. Michael will therefore have an increasing adjustment. Using the above formula, the adjustment will be:

    10% × $495,000 (sale price) × 100% (non-creditable use) = $49,500.

    End of example

    See also:

      Last modified: 08 Sep 2017QC 21960