GST and Business Sales: What You Need to Know | Wilson & Assoc Chartered Accountants

GST and Business Sales: What You Need to Know

GST and Business Sales: What You Need to Know

When it comes to selling a business, the question of whether the sale is subject to Goods and Services Tax (GST) often arises. This FAQ addresses the key concerns and provides clarity on GST implications.

1. What is GST?

Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. It is usually included in the final price paid by consumers and is collected by businesses on behalf of the government.

2. Is the sale of a business subject to GST?

The sale of a business can be subject to GST depending on the nature of the transaction. It generally falls under two categories:

•   Supply of a Going Concern: If the sale of the business qualifies as the supply of a going concern, it may be GST-free.

•   Sale of Business Assets: If individual assets of the business are being sold rather than the business as a whole, GST is typically applicable.

3. What is a “Supply of a Going Concern”?

A “going concern” refers to a business that is operating and can continue to operate after it is sold. To qualify as the supply of a going concern, the following conditions must be met:

•   The sale includes everything necessary for the business to continue its operations.

•   The business is carried on up until the day of sale.

•   Both the buyer and seller must be registered for GST.

•   Both parties must agree in writing that the sale is of a going concern.

4. Are there any specific requirements for a sale to be considered GST-free?

Yes, for a sale to be GST-free as a going concern, it must meet these specific requirements:

•   Business Assets: The sale must include all assets necessary for the continued operation of the business.

•   Continuity: The business must continue its operations up to the sale date without interruption.

•   Written Agreement: Both parties must agree in writing that the sale is of a going concern.

•   GST Registration: Both the buyer and the seller need to be registered for GST.

5. What happens if the sale does not qualify as a supply of a going concern?

If the sale does not qualify as the supply of a going concern, it will be treated as the sale of individual business assets. In this case, GST is generally applicable to the sale. The seller must charge GST on the sale price of each asset and report it in their Business Activity Statement (BAS).

6. How is GST calculated on the sale of business assets?

GST is calculated at a rate of 10% on the sale price of the business assets. For example, if a piece of equipment is sold for $10,000, the GST would be $1,000, making the total sale price $11,000.

7. Are there any exemptions or special cases?

Yes, there are special cases and exemptions:

•   Second-hand Goods: In certain circumstances, the sale of second-hand goods may be exempt from GST.

•   Sales Below Market Value: If the business is sold below market value, there may be different GST implications.

•   International Transactions: The sale of a business to a foreign buyer may have different GST rules.

8. What should buyers and sellers consider regarding GST?

Both buyers and sellers should:

•   Seek Professional Advice: Consult with a tax professional or accountant to understand the specific GST implications of their transaction.

•   Document the Sale: Ensure all agreements and transactions are well-documented.

•   Register for GST: Verify that both parties are registered for GST if required.

9. What are the penalties for incorrect GST treatment?

Incorrect GST treatment can result in penalties, interest charges, and the requirement to pay any underpaid GST. It’s crucial to ensure compliance with GST regulations to avoid these issues.

10. What if I have more questions?

Feel welcome to reach out to our friendly team at Wilson & Assoc any time. We’ll be happy to help manage your specific situation and challenges.

About Wilson & Assoc

Wilson & Assoc Chartered Accountants provides taxation and business advisory services to individuals, investors and businesses wherever you are based. We provide specialist services to startups and health care providers.

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Disclcaimer: The information provided within this article is general information only.  None of the comments in these notes are intended to be advice, whether legal, financial product or professional. You should obtain specific advice regarding your particular circumstances from a tax or legal professional.

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