When you are looking to buy a commercial property i.e. factory or office space, you should consider applying the Going Concern GST exemption. This is the exemption that allows the transaction to be GST free as it is the sale of a business or a business related asset (like a commercial property).
The advantages of doing this include:
- Saving on stamp duty costs, as stamp duty is payable on the GST inclusive purchase price.
- Cashflow benefit as you − the purchaser − do not have to find the extra funding to cover the GST and then have to apply to claim it back from the ATO a couple of months later when you lodge your BAS.
To apply the Going Concern GST exemption, the following conditions must be met:
- Both the purchaser and seller must be GST registered.
- Both parties must agree in writing (usually in the sale contract) to apply the Going Concern exemption.
- The seller must supply “all things necessary” for the continued operation of the commercial property (for example, if there is an existing tenant occupying the commercial property, the tenant must continue to occupy the property to the date of settlement).
For example: Assume you are buying a factory for $2.4m. The GST payable on this would be $240,000. The difference between applying the Going Concern exemption and not applying the exemption are shown below.
|Going Concern Applied||No Exemption|
|GST payable (but refundable in BAS)||$0||$240,000|
|Stamp duty payable (NSW 2015 rate)||$117,490||$130,690|
|Stamp duty saving||$13,200||$0|
Therefore, by getting your purchase contract written up properly at the beginning and ensuring the Going Concern exemption is applied, not only will you not have to find the extra $240,000 funding cost for a couple months you also saved $13,200 in stamp duty.
The ability to access the Going Concern exemption, depending on the circumstances and whether there is a tenant in the property when you buy it, will need the support of the vendor as they will have to agree to the wording in the sale agreement covering the issue. This is a common clause in the agreement and is a common discussion between the solicitors of the buyer and vendor.
Any questions, please do not hesitate to contact us to discuss.
*Correct as of May 2015
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.