GST on Property purchases and the “Going Concern” exemption
GST is a broad based tax of 10% levied on most goods, services and other items sold or consumed in Australia.
GST applies on the sale of certain types of property, in certain circumstances. Importantly, there are a number of exemptions that apply in relation to the assessment of GST when purchasing property. The purpose of this article is to consider the application of the ‘Going Concern’ exemption to commercial property.
The ATO GSTR 2002/5 ruling is a good starting point for understanding the ‘going concern‘ exemption.
Application of GST to property
GST is assessed on the adjusted property purchase price (including adjustments on council and water rates, land tax, and other costs). If GST applies, stamp duty will be payable on the full purchase price (inclusive of GST). This increases the costs for a purchaser.
The Going Concern exemption
If a property is part of the sale of a going concern, GST will not apply to the sale of the property. The A New Tax System (Goods and Services Act) 1999 (GST Act) provides that for a sale to be a going concern, the following must apply:
consideration (e.g. money or some other form of payment) is paid for the supply;
the Purchaser is registered or required to be registered for GST;
both the Purchaser and Vendor have agreed in writing that the sale is a going concern (generally by way of a Special Condition in the contract for sale to this effect);
all things necessary for the ongoing operation of the business are supplied by the Vendor upon completion; and
the Vendor must carry on the business up until the day of supply.
A property purchase may be GST exempt due to being part of a sale that is considered a going concern. This may arise where the property is:
a commercial property that is subject to a lease;
part of a business purchase where that property is necessary to the operating of the business;
a fully tenanted building or complex where all leases are included in the sale; or
a partially tenanted building or complex, where the vacant units or shops are being actively marketed or closed for repairs or maintenance.
There are a number of circumstances where the ‘going concern’ exemption does not apply, including:
The vendor does not provide all things necessary for the continuation of the business.
The vendor does not carry on the business or “supply” up until the day of settlement. For example, if a vendor has been running a business from the premises you are purchasing i.e. a hotel or a restaurant) but ceases its operations in the days leading up to the settlement, the exemption no longer applies and GST will be payable at settlement.
If a purchaser is buying a commercial property that is subject to a lease, and the vendor terminates the lease of the premises prior to settlement, the supply is no longer a going concern and the sale of the property will be subject to GST.
If it is intended that the ‘going concern’ is a leasing enterprise, the lessor and lessee entity are the same.
If you are considering purchasing a commercial property and would like assistance, please do not hesitate to contact our dedicated property team here at Jenkins Legal for a friendly, no obligation, discussion.
This article is general in nature and not intended to be relied on as professional legal advice.