Regardless of the buyer`s cash flow and stamp duty savings, the risk that a transaction cannot be considered a delivery from an ongoing business ultimately rests with the seller. In other words, although sales contracts generally provide that the buyer is responsible for each GST, it is legally the seller who is required to transfer the GST to the ATO. For this reason, a seller should require the buyer to compensate the seller for all TDPs (and penalties) that must be paid in the event that the parties are wrong as to whether the sale of transactions is a free trade concern. We have been approached by customers who have restructured their business and then we ask to formally document the transaction at a later date. Although it is possible to establish the transfer legally, these clients are often disappointed to learn that, although “the entire transaction” has been transferred, it is not eligible for GST exemption, as there was no written confirmation from the parties before or at the time of the restructuring that the sale would be of current concern. There are three important thoughts they need to make when selling your business as a business. It is important to make sure that you: When a business is sold and GST applies, the buyer is usually required to pay an additional 10% of the purchase price at the close to cover the GST. The buyer has the right to recover the GST through a 10% advance tax credit, but the buyer does not receive this tax credit upstream until after closing. While a refund of the GST is possible, when stamp duty is to be paid on sale, stamp duty is calculated on the basis of the purchase price, including GST, and the GST component is not refunded.
This comprehensive sales contract contains provisions that deal specifically with the company`s value, trade shares, leasing, operating assets, GST (goods and services tax), business name, trade restrictions, personnel, stamp duty, dispute resolution and much more. Finally, when processing the delivery of a business as a GST-free business, the seller may claim upstream tax credits for certain expenses related to the sale of the business (z.B. due diligence costs), whereas this would not be the case if the sale of the business is done through a sale of shares (which is subject to consumption tax). , which means that upstream tax credits cannot be claimed for similar expenses). If you are able to meet all of the above requirements, your sale should be a running business and there will be no GST payable. But for the buyer, it`s often a question of cash flow. It is best not to come up with the extra money that you then have to wait to get your next activity statement back. Sometimes a buyer cannot finance the extra money at all, since he is already entering credits at his purchase price limit and other business creation activities. Therefore, if you are afraid of having a “permanent concern,” you should get advice at an early stage of your negotiations. As a general rule, the sale of real estate is not considered an ongoing problem.