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Sale of a Business: Will I need to pay GST?

So you’ve decided to buy or sell a business and you’ve negotiated the terms and conditions surrounding the sale or purchase…

Have you negotiated whether the price will be GST inclusive or exclusive, or did you simply assume that the transaction is GST-free without considering whether the sale is a “going concern”?

In the context of buying or selling a business, a “supply of going concern” allows the sale of a business to be a GST-free transaction provided that the following conditions are met:

  • The sale is for consideration, which means that something needs to be paid for the business.
    • Both the vendor and the purchaser must be registered for GST.
    • The business sale contract must expressly state that the sale of the business is a going concern.
    • The seller must sell everything that is necessary for the continued operation of the business (i.e. plant and equipment, goodwill, contracts). This includes providing the premises from which the business operates by way of a sale or, if the premises are being leased by the seller, by assigning the existing lease to the buyer or surrendering the existing lease after which the buyer will enter into a new lease with the landlord.
    • The seller must ensure that the business continues to trade up until the settlement date, where control and ownership of the business is effectively transferred to the buyer.
    • The business must continue to trade in its “normal” manner after the sale has settled.

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