Last month saw a taxpayer make a lucky escape by using the GST going concern exemption.
The exemption applies when an individual or entity is selling their business. The exemption results in the sale being GST-free, meaning that you don't need to add 10% GST to the sale price.
Why take advantage of this exemption?
Whether buying or selling a business, the benefits are straightforward. For a buyer, the main advantage is cashflow. If an additional 10% GST is added to the price, this means more cash is required in the short term to fund the purchase. With cash being hard to come by in this climate, buyers naturally veer towards a solution that avoids a strain on cash. For vendors, they can use the exemption as a selling point to assist in a successful sale. It can also reduce stamp duty payable on sale.
As with all GST concessions, there are several requirements to be met to claim the concession. For example, the seller must supply all things necessary for the continued operation of the business, and the buyer and seller must agree in writing to apply the exemption.
To fulfill the written agreement requirement, it is standard practice to have the appropriate clause inserted into the contract. However, this did not occur in a recent Court case, and was discovered by the ATO during an audit. The ATO denied the exemption, and raised an assessment for just over $200,000. The taxpayer produced correspondence between their solicitor and the buyer's solicitor, a tax invoice relating to the settlement, and direct correspondence between the buyer and seller. The Court held all the correspondence was sufficient to indicate the parties had agreed in writing to apply the exemption.
Once again this highlights the importance for our tax team at UHY Haines Norton to review the contract before it is signed. This allows us to identify if the contract meets all conditions to claim the exemption. If any changes are required, we can communicate this to your solicitor. Once the contract is signed, it is difficult both legally and practically to have changes inserted at a later date. A formal review would have also avoided the above situation, along with the added legal costs and stress involved. Not to mention potential ATO penalties and interest.
The next step...
We have handled many GST going concern transactions and are happy to assist you in your transaction.
Contact us to discuss your position on 07 3210 5500 or firstname.lastname@example.org.