If you’re selling a commercial property that has a tenant in it, there’s a good chance you’ve heard about the “going concern” exemption. And if you haven’t, it’s something well worth knowing because it could save you and your buyer a lot of money and hassle when it comes to GST.
So, what is it?
Normally, when you sell commercial property in Australia, you have to charge 10% GST on top of the sale price. That can be a big hit, especially for buyers who have to come up with that extra cash up front, even if they’re going to claim it back later.
But the law makes an exception. If you’re selling a commercial property as part of an ongoing business (that is, with a lease in place and a tenant paying rent), then you might be able to treat the sale as a “going concern”. And if you get that right, the whole deal can be GST-free.
How does that work?
It all comes down to a few key things. First, you need to actually be running a business at the time of sale. In this context, that means you’re leasing out the property; you’ve got a tenant in place, and rent is coming in.
The lease can’t just be something that starts later, and the place can’t be sitting empty. The business (the leasing of the property) has to be active through to settlement. You also need to hand over everything the buyer needs to keep running that leasing business. That means the property itself, of course, but also the lease, and any records or agreements that go with it.
And there’s one more important thing: both you and the buyer need to be registered for GST. Not just planning to register or partway through the application, you’ve both got to be properly registered by the time settlement happens.
Do you need to write that into the contract?
Yes. Absolutely. The law requires that the parties agree in writing that the sale is being treated as a going concern. So it’s not something you can sort out after the fact. The contract should make it really clear that the sale is intended to be GST-free under the going-concern exemption.
Your lawyer or conveyancer will usually include a clause to that effect, but it’s worth double-checking.
Why bother?
The main reason is the money. If GST applies, the buyer has to pay 10% more at settlement and then wait to claim it back later. That’s a lot of money to tie up. If the exemption applies, the price stays as-is, and neither side has to deal with that extra tax.
So what could go wrong?
Quite a bit, actually, especially if no one’s paying attention.
Let’s say you’ve promised vacant possession in the contract. That usually means the tenant will be gone before or at settlement. But if the tenant’s gone, the leasing business has effectively stopped. No lease, no going concern, no exemption. GST gets triggered.
Or maybe the lease hasn’t actually started yet. You’ve got a signed lease, but the tenant doesn’t move in until a week after the settlement. Same problem, there’s no “ongoing” business on the day of supply, so the exemption doesn’t apply.
Another common issue is with GST registration. If either the buyer or seller isn’t fully registered by settlement day, the deal can’t be treated as GST-free. That’s a simple one to overlook, but it can cause a major headache if it slips through.
And of course, if the contract doesn’t include the right clause (if the parties didn’t agree in writing), it’s game over. The ATO won’t accept that the sale qualifies for the exemption.
What about the buyer?
They’ve got a role to play, too. They have to be GST-registered. But they also need to carry on the leasing business after the settlement. That means stepping into your shoes as a landlord, collecting rent, dealing with the tenant, and so on.
If they’re planning to redevelop the property straight away or knock the building down, that could raise some red flags. But generally speaking, as long as the lease continues and the business of leasing is still alive and well at the time of settlement, the exemption should hold.
Final thoughts
The going concern exemption is a great tool for commercial property deals, but it’s one of those things where the details really matter. If everything lines up (lease in place, both parties GST-registered, clear contract wording), you can keep GST out of the picture altogether. But if something small gets missed, you might find yourself facing an unexpected tax bill.
So, if you’re thinking about selling (or buying) a leased commercial property, talk to your lawyer or conveyancer early. Make sure the lease is solid, the contract says what it needs to say, and no one’s promising vacant possession by accident.
A little preparation goes a long way and can save you a lot of stress down the track.
Disclaimer
Legal Information Only
The information on our website is general and is not legal advice. We put lots of work into making our content insightful but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues – just reach out.