Going Concern Basis – Save on Stamp Duty when acquiring a Commercial Property

If you are looking to buy a commercial property, you will run across the terms “Going Concern GST exemption”.

The seller of the property will most likely have to apply GST to the sale, which will add tens of thousand to what you have to pay. If you are registered for GST, you will be able to claim it back in your next BAS return, but that could be months away.

Importantly though, the Land Transfer Duty (Stamp Duty) that you pay is based on the price you paid for the property or its market value, whichever is greater, and includes any GST payable.

Going Concern GST exemption

HOWEVER, there’s an exemption that:

  • allows the transaction to be GST free, and
  • lowers the stamp duty payable on the acquisition. 

If the sale if the sale of a business or a business-related asset, like a commercial property, and if it is treated as a ‘Going Concern’ sale, then the seller does not have to charge GST and then remit it to the ATO, nor does the buyer have to pay the GST and then claim it back in the next BAS.

Savings

The two big advantages are:

  1.  Cashflow benefit to the purchaser. You will not be out-of-pocket for the amount of the GST between the date of settlement and the day that you receive the refund from the ATO.
  2. Saving on Land Transfer Duty (Stamp Duty), as duty is payable on the GST inclusive sale price.

Assume you are buying a factory for $2.0 million. The GST payable on this would be $200,000. The difference between applying the Going Concern exemption and not applying the exemption are shown below.

Going Concern AppliedNo Exemption
Sale Price $2,000,000 $2,000,000
GST payable
(but refundable in BAS)
$0 $200,000
Stamp duty payable
(SRO Vic 2018)
$110,000$121,000
Total cost$2,110,000 $2,321,000
Stamp duty saving $11,000 $0

Therefore, by getting your purchase contract written up properly at the beginning and ensuring the Going Concern exemption is applied, not only will you not have to find the extra $200,000 funding cost for a couple months, but you will also save $11,000 in stamp duty.

Conditions

To apply the Going Concern GST exemption, you must meet the following conditions:

  1. Both the buyer and seller must be GST registered.
  2. Both parties must agree in writing to apply the Going Concern exemption. This is usually contained in the Contract of Sale.
  3. The seller must provide “all things necessary” for the continued operation of the commercial property or business. If there is a lease already in place, then the rights of the landlord under the lease will need to be transferred.

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. If there isn’t then you may wish to enter into a short-term lease with the vendor prior to settlement and then that lease is transferred at settlement.

It’s worth fighting for

Whether there is a lease or not, you will need the support of the vendor as they will have to agree to the ‘Going Concern’ terms being invoked in the sale agreement. This is a common clause in the agreement and is often a negotiating point between the vendor and buyer. Usually the vendor is reluctant to agree because, without the exemption, you would pay the GST inclusive price and he will have free use of the GST funds until he’s required to pay them to the ATO, which could in some cases be nearly 5 months after settlement. However, if a vendor is keen to sell and wants to ‘sweeten the pot’ for the purchaser, the offer to include the Going Concern clauses might be enough to secure the sale.

If you want to know more about how the exemption works then contact Noel or Amanda on 03 9585 7555 oremail us.

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