When engaging in tax planning to purchase a commercial property, such as a factory or office space, it is vital to consider the potential benefits of applying for the Going Concern GST exemption. This exemption exempts the transaction from GST, as it involves selling a business or a business-related asset, such as 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 apply to claim it back from the ATO a couple of months later when you lodge your BAS.
To apply for 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 for the Going Concern exemption.
- The seller must supply “all things necessary” for the continued operation of the commercial property (for example, if an existing tenant is 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 is shown below.
| Going Concern Applied | No Exemption | |
| Sale Price | $2,400,000 | $2,400,000 |
| GST payable (but refundable in BAS) | $0 | $240,000 |
| Stamp duty payable (NSW 2015 rate) | $117,490 | $130,690 |
| Total cost | $2,517,490 | $2,770,690 |
| 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, you will not have to find the extra $240,000 funding cost for a couple of months and save $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 vendor’s support as they will have to agree to the wording in the sale agreement covering the issue. This is a standard clause in the agreement and is a joint discussion between the solicitors of the buyer and vendor.
If you have any questions, please do not hesitate to contact us to discuss.
*Correct as of May 2015
*Disclaimer – Kreston Stanley Williamson has produced this article to serve 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 in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
