Start with the enterprise being supplied
The GST going-concern concession applies to a supply of an enterprise, not simply to a building with rent coming in. In a tenanted commercial property sale, the leasing enterprise is usually central. The contract, lease and settlement steps need to preserve what is being supplied.
The buyer should identify the enterprise, the assets needed for it to continue and whether those assets will pass at settlement. A lease that expires, is surrendered or is materially changed before settlement may alter the analysis.
Check the statutory conditions
Broadly, the supply must be for consideration, the recipient must be registered or required to be registered for GST, and both parties must agree in writing that the supply is of a going concern. The seller must supply everything necessary for the continued operation and carry on the enterprise until the day of supply.
These conditions should be tested before exchange. A label in the contract cannot cure facts that do not support the treatment.
Model the downside as well as the intended treatment
If the concession does not apply, GST, funding and settlement adjustments can change. Ask the solicitor and tax adviser who carries the risk, how any GST is calculated and whether the buyer can claim an input tax credit. The margin scheme is a separate question and is not automatically available.
Documents to assemble
- Draft contract and GST clauses.
- Current lease, variations and incentives.
- GST registration details for both parties.
- Settlement statement and funding approval.
- Any proposed vacancy, surrender or new lease.
A practical example
Assume an investor agrees to buy a warehouse subject to an existing lease. The seller continues collecting rent until settlement, the lease transfers with the property, both parties are registered for GST and the contract records their agreement that the supply is a going concern. Those facts may support the concession, but the advisers still need to check that the leasing enterprise and everything necessary to continue it are supplied.
Change one fact and the conclusion may change. If the tenant surrenders the lease before settlement, the property becomes vacant or the buyer is not registered when required, the intended treatment may fail. This is why the GST clause should allocate risk rather than merely state an expectation.
Why the contract wording matters
The contract should address the parties’ GST registrations, their written agreement, the enterprise being supplied and what happens if the ATO later disagrees. It should also deal with adjustments, indemnities and any security for additional GST. These are legal drafting questions for the conveyancer or solicitor, informed by tax advice.
Ask whether the price is GST-inclusive, GST-exclusive or expressed on the assumption that the concession applies. The economic difference can be substantial, and the lender may assess the transaction differently if extra GST must be funded at settlement.
Due diligence before exchange
- Confirm who owns the property and who conducts the leasing enterprise.
- Review the executed lease, variations, incentives, arrears and termination rights.
- Confirm the buyer’s intended entity and GST registration status.
- Check whether any management agreements, licences or other assets are needed.
- Ask how rent, outgoings, deposits and GST will be adjusted at settlement.
- Have the tax position and contract clauses reviewed before signing.
Questions for the buyer’s advisory team
Ask the solicitor to explain the GST clause in plain English: which party bears additional GST, what evidence of registration is required, and what happens if the lease changes before settlement. Ask the accountant to confirm whether the proposed purchaser is registered or required to register and whether input-tax-credit timing affects cash flow. Ask the lender whether finance covers a GST exposure if the intended concession fails.
The answers should agree with one another. A contract that assumes one entity is buying while the finance approval or GST registration relates to another entity is a warning sign.
Common going-concern mistakes
Common errors include relying on the real estate agent’s description, assuming any occupied property qualifies, leaving registration until after exchange, or overlooking an agreement to end the lease. Another is treating settlement adjustments as bookkeeping details when they can change the cash required.
Buyers can also focus so heavily on GST that they neglect the investment itself. Review the tenant’s covenant, lease term, incentives, outgoings, repairs and vacancy risk. Concessional GST treatment does not turn an unsuitable commercial property into a sound purchase.
Timing from offer to settlement
Before making an offer, identify the buyer and request the lease documents. Before exchange, obtain tax and legal review of the transaction and the GST clause. Between exchange and settlement, monitor lease changes, registrations and the seller’s continuing operation of the enterprise. At settlement, retain the signed contract, adjustments, tax invoices or going-concern documentation and evidence supporting the treatment.
If a material fact changes, revisit the advice. The original conclusion was based on the original facts.
A structured review process
Begin the GST going-concern review by assembling the contract, lease, GST registrations, settlement adjustments and finance approval. Write down what is confirmed, what is estimated and what still depends on another party. This prevents an early assumption from quietly becoming the basis of the whole decision.
Next, work through the leasing enterprise, continuity to settlement, written agreement and supply of everything necessary. Put the result into a short decision paper showing the preferred approach, the main alternative, the expected cash requirement and the matters that still need professional confirmation. The purpose is to make the trade-offs visible before a deadline or signed document removes flexibility.
Who should confirm each part?
The relevant team may include the solicitor, accountant, broker and buyer. Give each adviser the same facts and proposed timeline. Ask for written confirmation of the issues within their scope and make sure one person is coordinating the open items.
Tax advice does not replace legal drafting, legal advice does not confirm loan approval, and loan approval does not establish affordability. A coordinated review is valuable because these decisions overlap while the professional responsibilities remain distinct.
What can go wrong if the review is rushed?
The immediate risk is additional GST, delayed settlement or a dispute over who bears the tax. A rushed decision can also create secondary costs: refinancing, amendments, professional fees, penalties, lost bargaining power or a structure that is expensive to change later.
Use a written deadline plan. Mark the last practical date for tax review, legal changes, lender approval and transfer of funds. Leave time for documents to be corrected. If a key fact remains uncertain, model the unfavourable outcome rather than assuming it will resolve itself.
Records after the decision
Once the transaction or review is complete, retain the executed contract, registration evidence, lease and settlement workings. Save the advice relied on and note any assumptions that must be revisited. Good records reduce the cost of future tax returns, refinancing, audits and sale planning.
Schedule a review when ownership, use, finance, income or legislation changes. Property decisions continue after settlement, and the original advice may no longer fit new facts.
Questions people ask
Does a tenant automatically make the sale a going concern?
No. The full legal conditions and the actual enterprise supplied must be checked.
Must both parties be GST-registered?
The recipient must be registered or required to be registered, and the parties must make the required written agreement.
What if the lease ends before settlement?
That can affect whether a leasing enterprise is supplied and should be reviewed before the contract is signed.
Your next step
Read the business premises ownership guide and SMSF commercial property guide. Source: ATO GSTR 2002/5.
Tax, legal, lending and property outcomes depend on your facts. This is general educational information, not personal advice.
Book an Initial Review