Buying a business: will you pay GST, or is it a GST-free going concern?

You’ve found the one. The café with the queue out the door, the plumbing business with three council contracts, the online store that ships every day. You’ve agreed a price — and then someone asks, “Is that plus GST?”

It’s a fair question, and the answer can move your settlement figure by 10% overnight. The good news: most business sales in Australia are structured as a GST-free supply of a going concern, so no GST changes hands at all. The less good news: that only works if every condition is ticked, and the buyer usually wears the risk if one is missed. Here’s how it works, and how to make sure the money side holds up either way.

What does “going concern” actually mean?

In plain English, a going concern is a business that’s up and running on the day it changes hands. You’re not buying a pile of second-hand equipment and a customer list — you’re buying a working engine that the seller passes to you without switching it off.

The ATO’s ruling on the topic, GSTR 2002/5, says the seller must supply the things that put the buyer “in a position to carry on the enterprise”. That usually means two kinds of things:

• The assets — premises where the business needs them, plant, equipment, stock and intangibles such as goodwill, contracts and licences.
• The operating structure — the actual activity of the business, such as ongoing trading, marketing and supplier relationships.

What are the conditions for a GST-free going concern sale?

The ATO’s page on the sale of a going concern sets out what has to be true. Think of it as a checklist where one cross ruins the lot:

Condition	What it means in practice	Where it usually trips people up
Payment is made	It’s a sale for a price, not a gift	Rarely an issue
Buyer registered (or required to be) for GST	Your buying entity has an ABN and GST registration	A new company or trust set up late, still waiting on registration
Everything needed to keep trading is supplied	Assets, stock, goodwill, contracts, premises where needed	The lease isn’t assigned, or key equipment is left out of the deal
Seller carries on the business until settlement	The doors stay open up to the day you take over	The seller closes early “to do a stocktake” or stops taking bookings
Agreed in writing beforehand	The contract states it’s a going concern sale	A handshake deal, or a clause added after settlement

All of them have to apply. There’s no partial credit.

Why does the buyer need to care, if GST is the seller’s tax?

Because the contract normally pushes the risk onto you. GST is the seller’s liability, but business sale contracts commonly include a clause saying that if the sale turns out not to be GST-free, the buyer pays the GST on top of the price. Read that clause carefully with your solicitor.

The trigger is often something on the buyer’s side. The most common is registration. If you’re buying through a brand-new company or trust, that entity needs its ABN and GST registration sorted before settlement. If the business you’re buying already turns over $75k or more, your entity will generally be required to register for GST anyway, so there’s no reason to leave it until the last week.

What happens if the sale isn’t a going concern?

GST generally applies to the price. On a $400k purchase, that’s another $40k due at settlement.

If you’re registered and you use the business to make taxable sales, you can usually claim that GST back as a credit on your BAS. So it’s rarely a permanent cost — it’s a timing problem. You pay out the cash at settlement and get it back weeks or months later, depending on how you report:

• Quarterly BAS: for the October to December quarter, the ATO’s BAS due dates put lodgment at 28 February. Settle in October and you could be waiting four months or more.
• Monthly BAS: due on the 21st of the following month. Settle in November and you can lodge by 21 December.
• Lodge early: a refund BAS can go in as soon as the period ends. You don’t have to wait for the due date.

Refunds can also take longer if the ATO checks a large claim, which a business purchase often is. Build in a buffer.

Want to see how big that gap is for your deal? Our cash-flow gap estimator will size it, or you can check your options with a real person before you sign.

What does it look like in real numbers? (illustrative)

Here’s a made-up example to show the two paths side by side.

Mai is buying a Melbourne café through her new company. The agreed price is $380k, including $40k of stock and equipment. She’s contributing $120k in savings and borrowing the rest through a business acquisition loan secured partly against her home.

	Path A: GST-free going concern	Path B: going concern conditions missed
Price	$380k	$380k
GST at settlement	Nil	$38k
Cash needed at settlement (before costs)	$380k	$418k
GST credit back on BAS	—	$38k, after lodgment and processing
Extra cash to plan for	None	$38k for roughly 1–4 months

In Path B, the seller shut the café for a week before settlement to repaint and do a deep clean. She stopped trading before settlement, so the sale is no longer a going concern. That’s $38k Mai didn’t have in her budget, needed within days.

The fix she wishes she’d had: confirm in the contract that the seller keeps trading until settlement, register the company for GST early, and have a plan B for the GST anyway. A small short-term facility lined up in advance would have covered the gap and been repaid when the BAS credit landed. Illustrative only — not a real client.

Which finance fits the GST gap?

The GST on a business purchase is a classic short-lived need: a fixed amount, due on a known date, repaid from a known source (the GST credit). That’s the textbook case for matching a short loan to a short job, which our guide to costing your growth plan covers in more detail.

Option	How it fits the GST gap	Watch out for
Short-term business loan	Covers the GST at settlement, repaid when the credit arrives	Make sure the term allows for a slow refund
Bridging loan	Property-secured, suits bigger purchases and fixed settlement dates	Needs property equity and a valuation, so start early
Increase the acquisition loan	One facility, one set of paperwork	You may keep paying on GST money long after it’s refunded
Line of credit	Draw it at settlement, pay it down when the refund lands	Needs an existing trading history to set up
Your own cash	No cost of finance	Drains the working capital you’ll need in the first months

If you’re buying a franchise outlet, the same rules apply. Our franchise finance page covers the rest of the funding picture.

What else should you check before you sign?

A few things catch buyers out more than you’d expect:

1. Get the going concern wording into the contract. It has to be agreed in writing before settlement. Your solicitor will know the standard clause.
2. Check what’s actually being sold. If the seller keeps a key machine, the website or the phone number, ask whether everything needed to run the business is still being handed over.
3. Sort the lease. If the business relies on its premises, the lease assignment or new lease needs to land at settlement.
4. Register first. Get the ABN and GST registration for your buying entity in place before exchange if you can.
5. Think about private or input-taxed use. If part of the business, such as a flat upstairs that’s rented out, will be used privately or to earn input-taxed income, you may owe an increasing GST adjustment even on a GST-free purchase. GSTR 2002/5 and your accountant are your friends here.
6. Remember everything else on top of the price. Stamp duty where your state charges it, legal and accounting fees, and working capital for the handover. business.gov.au’s guide to buying an existing business has a good due diligence checklist.

How do lenders look at the GST question?

When you apply for acquisition finance, a lender will usually want the signed contract (or a draft), the seller’s financials and bank statements, and a clear breakdown of goodwill, stock and equipment. They’ll read the GST clause too. A clean going concern sale with a registered buyer is one less thing to worry about.

If GST is likely to apply, tell the lender up front. It’s far easier to set up the GST funding alongside the main loan than to go back a week before settlement asking for more. Lenders like buyers who’ve thought about the timing, because it shows you’ll manage the business’s cash the same way.

Ready to make your purchase plan settlement-proof?

Buying a business is one of the most exciting moves an owner can make, and the GST question shouldn’t be what trips you up at the finish line. Whether you need help funding the purchase, a short facility to cover GST until your BAS credit comes back, or both, we’ll help you work out the best structure before you sign.

It takes about 60 seconds to enquire, and there’s no credit check when you first enquire. There’s no spray-and-pray either: we won’t send your details to a pile of lenders, so your phone won’t light up with strangers. A real person reads your enquiry, looks at your deal and calls you. Please fill the form in accurately — the price, the settlement date and whether GST is likely — so we can point you to the right option first time.

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