For many business owners, selling a business can be both an exciting and complex milestone. One important concept to understand when selling a business is whether it qualifies as a “going concern” for Goods and Services Tax (GST) purposes. Selling a business as a going concern can have GST exemption on the sale.

What is a "Going Concern"?

Under the Goods and Services Tax Act 1999 (Cth), commonly referred to as the GST Act, section 38-325 provides a GST exemption for the supply of a going concern.

In simple terms, a “going concern” refers to a business that is operating and will continue to operate after the sale. The exemption allows the seller to avoid charging GST on the transaction, which can improve cash flow for both parties and reduce stamp duty exposure in certain states.

Legislative Requirements – Section 38-325 of the GST Act

The requirements for a supply to be GST-free as the supply of a going concern (SOGC) are contained in s 38-325 GSTA, which states that a supply of a going concern is GST-free if:

• The supply is for consideration;
• The recipient is registered or required to be registered for GST;
• Both the supplier and the recipient have agreed in writing that the supply is of a going concern.

The supply of a going concern is defined in s 38-325(2) GSTA as a supply under an arrangement under which:

• The supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise;
• The supplier carries on, or will carry on, the enterprise until the day of the supply.

Example

Jenny owns a café in Sydney, operating as a sole trader and registered for GST. She decides to sell her business to Mark, who is also registered for GST.

The sale includes:

• The lease of the premises;
• Equipment and furniture;
• Stock on hand;
• The transfer of employee contracts (if agreed);
• Existing supplier arrangements.



The business continues to trade right up until settlement, and both parties sign a written agreement that the sale is of a going concern.

The sale can qualify as a GST-free transaction under section 38-325 of the GST Act, provided all conditions are met.