GST Going Concern Exemption When Buying a Business in Australia: What Buyers Need to Know
When you buy a business in Australia as a going concern, you generally don't pay GST on the purchase price — provided four specific conditions are all met. Miss one condition, and the seller is liable to charge you 10% GST on top of whatever you agreed to pay, which on a $500,000 business is an extra $50,000 you weren't planning for.
This is one of those areas where the ATO rule sounds simple in principle and turns out to be surprisingly specific in practice. I've seen deals where the buyer and seller shook hands thinking everything was sorted, then discovered two weeks before settlement that one of them wasn't registered for GST. Not a fun conversation.
This guide covers what the exemption actually requires, where it typically fails, and what you should check before the contracts are signed. You'll also want to discuss this with your accountant and solicitor — I'm not giving you tax advice here, I'm giving you enough context to ask the right questions.
What Is the GST Going Concern Exemption?
The GST going concern exemption allows the sale of a business to be treated as GST-free under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999. In plain English: if you're buying a business that's continuing to operate, and certain conditions are met, neither the buyer nor the seller has to deal with GST on the transaction.
This matters because the default position is that GST applies to most taxable supplies in Australia. Without the exemption, a seller would normally need to charge 10% GST on the sale price, and the buyer would need to claim it back later as an input tax credit — which creates a cash flow problem and administrative headache that nobody wants.
The exemption exists specifically to avoid that friction. It's the standard approach for most Australian business sales, but it's not automatic. All four conditions below must be satisfied.
The Four Conditions (All Must Apply)
This is worth treating as a checklist, not a summary. The exemption fails if any single condition isn't met.
Condition 1: Both the buyer and the seller must be registered for GST.
If either party is not registered, the exemption doesn't apply. For sellers, this is usually not a problem — if the business has been running and turning over more than $75,000 a year, they're almost certainly GST-registered. For buyers, it's more common to find issues: a first-time buyer who hasn't yet registered an entity, or someone who's registered a company but hasn't added GST registration to it.
The key thing here is timing. Both parties need to be registered at the time of settlement, not just at the time you sign the contract. If you're setting up a new entity for the acquisition, get the GST registration sorted early. It can take a week or two, and if something gets held up with the ATO, you don't want to be scrambling on settlement day.
Condition 2: The sale contract must specify that the supply is of a going concern.
This one sounds straightforward, but it trips people up because it's not implicit — it has to be explicit in the contract. Your sale and purchase agreement needs to specifically state that the parties agree the sale is of a going concern for the purposes of the GST Act.
Your solicitor should be including this as standard, but check. I've heard of older or less-experienced practitioners using contract templates that don't include this clause, which creates an unnecessary problem.
Condition 3: The seller must supply everything necessary for the continued operation of the enterprise.
This is where the most arguments happen. The ATO's requirement is that the seller transfers "all the things necessary" for the buyer to continue operating the business — not just the assets you've identified in the schedules, but everything the business needs to keep running.
In a trades business, that typically means plant and equipment, customer contracts, employee arrangements, supplier relationships, licences, and the goodwill of the operation. If the seller is keeping something material back — say, a key piece of equipment that's on a separate lease they're not transferring — that could put the exemption at risk.
The grey area is around what's "necessary" versus what's incidental. A vehicle the owner uses for personal errands that happens to be used occasionally for work isn't necessarily something that must be transferred. A specialty piece of equipment that's central to the service offering probably is. Your accountant can help you assess whether the structure of the deal leaves the exemption exposed.
Condition 4: The seller must carry on the enterprise until the day of settlement.
The business needs to be operating right up until the keys change hands. A seller who winds things down in the weeks before settlement — stops taking on new jobs, lets staff go, allows contracts to lapse — could jeopardise the exemption, even if it was structured correctly at the start.
This is one reason why the transition period matters, and why the working capital adjustment clause needs to be drafted carefully. The business should keep operating normally until you take over.
What Happens If the Exemption Doesn't Apply?
If one or more conditions aren't met, the default GST rules apply. The seller is liable to charge GST at 10% on the purchase price. On a $300,000 business that's an additional $30,000. On a $1 million deal, it's $100,000.
In theory, if you're buying a business and you're registered for GST yourself, you can claim the GST back as an input tax credit — but you'll need to fund it in the meantime, and the refund process takes time. It's a cash flow problem that could be avoided with a bit of planning.
There's also a risk allocation issue. If the seller fails to charge GST when they should have, the ATO can still collect it from them. This sometimes leads to disputes about who bears the cost — another reason to have clear contractual language about how the GST treatment is allocated.
Asset Sales vs Share Sales
The going concern exemption applies to asset sales, not share sales. When you're buying shares in a company rather than the underlying business assets, you're buying an ownership interest — and share sales are generally input-taxed financial supplies, which means GST doesn't apply anyway (but also means no input tax credit for the buyer).
This is one of the practical considerations when choosing between an asset vs share sale. The GST treatment is just one factor — there are also stamp duty, capital gains tax, and liability implications to weigh up. It's worth a dedicated conversation with your accountant once you know which structure the seller is proposing.
Practical Steps Before You Sign
A few things worth doing before you sign contracts, specifically around the going concern exemption:
- Confirm both parties are GST-registered, or will be by settlement. Get copies of the ABN/GST registration, not just a verbal assurance.
- Make sure the contract explicitly states the supply is of a going concern. Don't assume it's in there — check.
- Review the asset schedule carefully. If something that's central to the operation is being excluded, ask why and whether it affects the exemption.
- Brief your accountant on the deal structure early, not the week before settlement.
The deal structure comparison framework covers the broader questions around how to think about asset vs share sales and deal structure. Worth having as a reference alongside your adviser's input.
I saw a deal recently where the buyer's solicitor and the seller's solicitor had both assumed the other had included the going concern clause in the contract. Neither had. They found out during the final review before signing. Added a week to the timeline and a bill for both lawyers to fix it (which is, I suppose, one way to generate legal fees).
A Note on Part-Business Sales
The exemption also applies to situations where you're only buying part of a business, provided the part you're buying is capable of operating on its own. This comes up occasionally with trades businesses where an owner sells one division — say, the commercial side of an electrical business — while keeping the residential side.
The test is still whether the buyer is getting everything necessary to operate the part of the business being sold. If the commercial division is genuinely self-contained with its own contracts, equipment, and staff, the exemption can apply. If it's tangled up with the residential side and can't operate without shared resources, it gets complicated.
This is module 6 territory from the Playbook — deal structure decisions that look straightforward on the surface but have meaningful tax consequences that affect what you're actually paying for the business.
Frequently Asked Questions
Is GST payable on a going concern business?
No GST is payable if the sale meets the four conditions under section 38-325: both parties are GST-registered, the contract specifies it's a going concern, all necessary things are transferred, and the seller operates the business until settlement.
Do I have to pay GST when buying a business in Australia?
Not if the going concern exemption applies. If any of the four conditions aren't met, the seller charges 10% GST on the purchase price. A buyer registered for GST can eventually claim it back, but it creates a cash flow issue.
Is the transfer of a business as a going concern subject to GST?
No — it's GST-free if all conditions are met. The exemption exists specifically to remove the friction of charging GST and then recovering it through input tax credits. The sale has to meet specific ATO requirements to qualify.
What does it mean to sell a business as a going concern?
It means the business is operational and all the components needed to keep running are being transferred to the buyer. The seller continues operating until settlement. It's not enough to just say it's a going concern — the contract and the deal structure need to reflect that.
What are the conditions for a GST-free going concern sale?
Both parties must be GST-registered, the contract must specify it's a going concern, the seller must transfer everything necessary for the business to continue operating, and the seller must carry on the enterprise until the settlement date.
This is one of those topics where the rule is clear but the application is full of small decisions that matter. If you're working through your first acquisition, the tax due diligence process is a good companion to this — it covers the broader tax questions you'll want answers to before you commit to a deal.
For a broader look at financing the purchase and how the deal structure intersects with what you can borrow, the financing options checklist is a practical starting point.
And as always with tax — get advice from a registered tax agent who's familiar with business acquisitions. The going concern rules are well-established, but the application to your specific deal is where the nuance lives.