Selling a business as a going concern: what it means and why it matters
What a going concern sale is, the ATO conditions for the GST-free treatment, and why "all things necessary" is worth thinking about carefully.
Selling as a going concern can make the sale GST-free. On a $3 million business that is a large number, and it is the reason the term appears in almost every business sale contract in Australia.
There is a second thing worth noticing in the test, and almost nobody writes about it. One of the conditions is that you supply everything necessary for the business to keep operating. Which raises a question if the thing it needs most is you.
What does selling a business as a going concern mean?
The ATO defines the concept plainly:
A going concern is a business that is operating and making a profit. No GST is payable on the sale of a going concern if certain conditions are met.
The exemption sits in section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999.
What are the conditions for a GST-free going concern?
The ATO sets out the requirements this way:
A sale of a going concern is GST-free if: the sale is for payment; the purchaser is registered or required to be registered for GST; the buyer and seller have agreed in writing that the sale is of a going concern.
Two further requirements sit alongside those, and they are the operational ones. The supplier must supply all of the things that are necessary for the continued operation of the enterprise, and must carry on the enterprise until the day of the sale (ATO).
So, in plain terms: it is a real sale for money, the buyer is GST-registered, both parties put the going concern agreement in writing before settlement, you hand over everything needed to keep running it, and you keep it running right up to the day control changes hands.
Whether a particular sale meets those conditions is a question for your accountant and your lawyer with the contract in front of them. The requirements are technical and the written agreement has to be in place at the right time.
Why does it matter?
Cash flow, mainly.
Without the exemption, GST applies to the sale and the buyer has to fund it at settlement, then claim it back later. That is a real amount of money moving in and out, and financing it can affect what a buyer is willing to pay or how the deal is structured.
Practitioners also note the transaction is simpler, because there is less need to separate and value every asset individually, and the business does not pause while that happens (Hall & Wilcox).
"All things necessary" is the part worth thinking about
Here is where the legal test and the practical reality meet.
The condition is that you supply everything necessary for the buyer to continue operating the enterprise. In most sales that is read as premises, equipment, stock, staff, contracts, licences and intellectual property. Those are the things the contract lists, and getting that list right is your lawyer's job.
But consider an owner-led business where the pricing judgement, the key relationships and the operational decisions all live with one person, and that person is leaving at settlement.
The contract can transfer the assets. It cannot transfer the owner.
We are not suggesting that makes a sale fail the GST test, and that would be a question for your adviser rather than for us. The point is narrower and more practical: a business that genuinely keeps going without you is easier to describe as a going concern, easier to hand over, and easier for a buyer to believe in. One that does not is relying on the buyer to supply the missing piece themselves, and they know it.
our guide to key person risk covers what buyers examine when they are working out how much of the business is the owner.
What does this mean in practice for a seller?
Four things.
Keep trading properly until settlement. The requirement to carry on the enterprise until the day of the sale is a condition, not a formality. Winding down, cutting staff or letting the pipeline empty in the final months creates a problem beyond the tax.
Get the written agreement right and early. Both parties must agree in writing that the sale is of a going concern, and the timing matters. Your lawyer handles this.
Make sure the list is complete. Everything necessary for continued operation has to be included. Licences, leases, supplier arrangements, systems access. our guide to the documents buyers ask for covers what tends to be missing.
And make the business one that keeps going. Documented processes, decisions made by other people, relationships held by the business. That is the version a buyer can operate on day one without you standing behind them.
Frequently asked questions
What does it mean to sell a business as a going concern?
Selling a business that is operating, in a way that lets the buyer continue running it without interruption. Where the conditions are met, the sale is GST-free under section 38-325 of the GST Act (ATO).
What are the conditions for a GST-free going concern?
The ATO lists: the sale is for payment, the purchaser is registered or required to be registered for GST, and the parties have agreed in writing that the sale is of a going concern. The supplier must also supply all things necessary for continued operation and carry on the enterprise until the day of sale (ATO).
Is a going concern sale GST-free?
Where all the conditions are met, yes. Whether your sale meets them is a question for your accountant and lawyer, because it depends on the contract and the circumstances.
What is the value of a business as a going concern?
Going concern value reflects the business continuing to operate, including goodwill, rather than the value of its assets sold separately. It is normally higher than a break-up or asset value, which is why a business that can demonstrably keep operating is worth more.
Does the buyer need to be registered for GST?
Yes. The ATO lists purchaser GST registration, or being required to be registered, as one of the conditions (ATO).
What happens if the going concern conditions are not met?
GST would generally apply to the sale in the ordinary way, which changes the cash flow at settlement. This is exactly why the written agreement and the completeness of what is transferred are worth getting right in advance with your adviser.
Clarity Systems installs ClarityOS in owner-led businesses, so decisions, relationships and money stop running through the owner. The Independence Score is where you find out how close yours already is.
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