The basic statutory conditions
The ATO states that a supply of a going concern is GST-free where the statutory requirements are met, including that the supply is for consideration, the recipient is registered or required to be registered for GST, and the parties agree in writing that the supply is of a going concern. The supplier must also supply all things necessary for the continued operation of the enterprise and carry on the enterprise until the day of supply.
“All things necessary” is transaction-specific
The test is not whether every asset owned by the seller is transferred. The question is whether the buyer receives what is necessary to continue the identified enterprise. For a leased-premises business, rights to occupy the premises may be central. In another business, intellectual property, licences, employees, equipment or key contracts may be necessary.
The enterprise needs to be identified
The contract should make clear what enterprise is being supplied. Ambiguity is dangerous where a seller operates multiple activities or retains part of the business. The legal description of the assets and the tax characterisation should tell the same story.
Carry on until the day of supply
The seller generally needs to continue operating the enterprise until the day of supply. A business that closes or disposes of essential assets before completion may create a going-concern problem even if the contract contains the right words.
Written agreement
The parties should expressly agree in writing that the supply is of a going concern. Sale contracts commonly include GST clauses that also address registration status, adjustments and what happens if the ATO later takes a different view.
Why indemnities and adjustment clauses matter
If GST is unexpectedly payable, 10% of the price can be commercially significant. The contract should state who bears the economic risk, whether the seller can recover GST in addition to the price, and what evidence is required before an adjustment is made. These clauses should be negotiated, not copied mechanically.
Going concern does not answer the CGT question
GST treatment and income tax/CGT treatment are separate. A transaction can be GST-free as a going concern while still giving rise to income tax consequences for the seller and cost-base consequences for the buyer. The sale agreement and tax advice should be coordinated.
What to check before signing
- Is the buyer registered or required to be registered for GST?
- What precisely is the enterprise being supplied?
- Are all assets and rights necessary to operate it transferring?
- Will the seller carry on the enterprise until completion?
- Does the contract contain an express written going-concern agreement?
- Who bears the risk if the treatment is later denied?