Carefully drafting sale of business contracts while considering the implications of GST legislation.
GST on sale of business and business purchases: The GST Considerations
GST on sale of business or the purchase of businesses must be considered within the transaction. Goods and services tax (GST) applies to sales of goods and services in Australia. There are a number of issues vendors must consider in relation to GST when selling a business. At the time of this information, GST is charged at a rate of 10% of the product or services’ value. A carefully drafted sale of business contract will take into account the implications of GST legislation.
What is GST?
GST is a tax on most goods and services, and other taxable supplies which is collected by the supplier (or vendor). As a sale of a business involves a range of assets, GST can often apply. However, a sale of business can be GST-free if it is characterised as the supply of a going concern. If the transaction is not GST-free, the purchaser may still be able to claim input credits for GST paid.
Sale of a going concern
Under GST legislation, a sale of the whole of a business may be treated as a supply of a going concern if particular criteria are met, including that:
- the vendor supplies everything to the purchaser that is required to continue operating the business;
- the vendor carries on the business until the day of settlement of the sale transaction;
- the sale is for consideration;
- the purchaser is registered, or required to be registered, for GST; and
- the supplier and the recipient have agreed in writing that the sale is a going concern.
It is important that vendors are properly advised on the GST implications of a sale of business as the tax liability risk ultimately lies with them. If a ‘GST-free’ sale is later found to be subject to GST, the vendor could be liable for the GST if the contract did not adequately provide for this scenario.
Selling a business as a going concern can be complex, with costly impacts for the vendor if the GST implications of the transaction are not properly considered. To talk to our experienced taxation and business sale lawyers call us on (02) 4929 7002, or email us at firstname.lastname@example.org.
“Butlers prepared standard contracts for every-day use in our business. The team ensured that the contracts complied with Australian Consumer Law and advised on best practices for PPSR registration. Their experience and knowledge in this complicated area was invaluable, and we feel that our business now has the best protection from expensive legal disputes.”