The Truth About Going Concern Transactions and GST
When buying or selling a business, one term that gets thrown around far too often is going concern. Many buyers assume that if a contract is marked "going concern", the entire transaction will magically be GST-free. Unfortunately, that assumption is one of the most common and costly mistakes we see at QC Law. As Business Lawyers on the Gold Coast, we regularly assist clients who sign a contract believing they'll save on GST, only to discover later that the transaction never qualified as a going concern in the first place.
In our recent QC Law podcast episode, we explored this issue in depth because we see it almost weekly. Buyers are keen to secure the deal, sellers are eager to present the cleanest price possible, and somewhere in the middle, the contract becomes a ticking time bomb.
What Does "Going Concern" Actually Mean
For a business purchase to be truly GST-free as a going concern, the seller must supply everything necessary for the buyer to continue running the business on the day of settlement. That sounds simple enough, but in practice it's far more detailed.
For example, suppose you are buying a property management rent roll. In that case, you may be buying nothing more than a list of clients, not an operational business with all the elements required to continue trading. Likewise, in the financial planning space, buyers often purchase a book of clients rather than an entire functioning business. These situations may not satisfy the going-concern requirements, despite contracts usually being GST-inclusive by default.
Another common problem arises where the business and the premises are structured incorrectly. In the podcast, our team discussed buyers attempting to lease premises from the same entity that is purchasing the company. You can't lease premises from yourself. Using the wrong entities can erode the going concern eligibility and trigger GST obligations the parties never expected.
Why So Many Contracts Are Incorrectly Marked
One of the most significant issues is that contracts are often labelled "going concern" without proper tax and legal input. This happens because:
- Buyers want to avoid paying GST on top of the purchase price
- Sellers want to present a GST-inclusive figure
- Agents are focused on closing the deal
- No one has adequately checked whether the transaction meets the legal requirements
At QC Law, we frequently review contracts that have been incorrectly marked as going concerns even though they clearly fail the legal test. This is why we always ask the same question, Who is your accountant?
Lawyers Are Not Your Tax Advisors
As the podcast explained, lawyers can assess the legal framework, but only specialist accountants can determine whether the structure and financial realities truly satisfy the going-concern conditions. We work closely with accountants because a legally efficient structure may not be tax efficient, and vice versa.
If a buyer proceeds with a contract incorrectly marked as a going concern, the ATO can later determine that GST should have been paid. That is not a bill anyone wants to receive after settlement. Worse still, if the seller has already spent the proceeds, it becomes a nightmare to unwind.
Why Proper Structuring Matters
Going concern issues often arise because business owners haven't used the right entities. You may need:
- One entity to own the business
- A second entity to own the premises
- Proper commercial leasing arrangements
- Correct loan structures
- Consistent accounting treatment
These are not things you want to discover halfway through a purchase. Once assets are held in the wrong structure, transferring them later can lead to stamp duty, transfer costs, and other unexpected charges.
Protect Yourself Before Signing Anything
The QC Law team sees too many buyers sign contracts before obtaining legal advice because they're afraid to miss out on the opportunity. Unfortunately, this usually ends up costing more later. A free contract review before signing can prevent significant financial consequences, particularly around GST and going concern classifications.
If you're buying or selling a business on the Gold Coast and want clarity around GST and going concern requirements, speak with a Business Lawyer at QC Law before signing anything.
