Work out the GST on a transaction
We will tell you whether GST applies, who bears it, and whether you can claim it back.GST is unusual among taxes in that most business buyers get it back. That makes the real risk a contractual one rather than a revenue one. Say a contract expresses the price as inclusive of GST and the supply turns out to be taxable. The seller then absorbs a tenth of the price. If the going concern or margin scheme conditions are not met, the liability appears at settlement when the money is already committed. The rules sit in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act).
The liability has a known owner
The contract says who bears the GST, so nobody funds it by accident at settlement.
Exemptions confirmed, not assumed
Going concern and margin scheme conditions are tested against the facts before the contract relies on them.
Cash flow you can plan for
You know when the GST is payable and when the credit comes back, which is rarely the same day.
What decides the GST treatment of a transaction?
GST applies at ten per cent to taxable supplies made by a registered entity in the course of its enterprise. Whether a particular transaction is taxable, input taxed or GST free depends on what is supplied and on the circumstances of both parties. Property and business sales carry specific rules, including the going concern exemption and the margin scheme. Each changes the amount payable and who accounts for it. Because a registered buyer can usually claim an input tax credit, the practical questions are who funds the GST and when.
Does the going concern exemption apply to my sale?
Only if several conditions are met. The buyer must be registered for GST. The seller must supply everything needed to continue the enterprise, and must carry it on until settlement. Both parties must also agree in writing that it is a supply of a going concern. If any condition fails on the day, the supply is taxable.
If GST applies, am I worse off?
Not necessarily. A buyer registered for GST can usually claim an input tax credit, so the cost is timing rather than value. The problem arises when the contract expresses the price as inclusive of GST and the seller ends up funding it. That is a drafting question, not a tax rate question.
What is the margin scheme?
It is a method of calculating GST on some property sales based on the margin rather than the full price. It reduces the GST payable where it applies. It has conditions, including how the property was originally acquired, and the contract has to provide for it. It cannot be applied after the fact.
When should I get GST advice?
Before the contract is signed. The treatment depends on facts about both parties and on what the contract says. Once it is executed the clause governs who bears the liability, and that is very difficult to renegotiate.
Settle the GST clause before the contract is signed
Send us the draft contract and tell us who the parties are. We will confirm the GST treatment and the wording the contract needs to reflect it.
A GST clause that assumes the wrong treatment costs you the margin
The contract has a GST clause in it and nobody has tested the assumption behind it. If the supply is taxable and the price is expressed as inclusive, the seller funds the GST out of the agreed price. If the going concern conditions are not satisfied at settlement, an exemption both parties relied on is simply not available.
- We will confirm whether the supply is taxable, input taxed or GST free.
- We will check the registration status of each party and what it means for the transaction.
- We will test the going concern conditions, or confirm that the margin scheme is available.
- We will review the contract's GST clause and tell you what it needs to say.
- We will confirm who can claim an input tax credit, and what is required to support it.
The contract has a GST clause and nobody has checked it
You are buying or selling property, a business or a going concern. The draft contract has a GST clause that came from a precedent. Nobody has confirmed whether both parties are registered, whether the supply qualifies as a going concern, or whether the margin scheme is available. The amount at stake is a tenth of the price, and it turns on facts that can be confirmed in a day.
What's included in your GST review
- Classification of the supply as taxable, input taxed or GST free.
- Registration check for both parties to the transaction.
- Going concern and margin scheme eligibility assessment.
- Review and drafting of the contract's GST clause.
- Input tax credit and tax invoice requirements.
- Advice on the timing of the liability and the credit.
Where GST actually goes wrong
GST errors rarely come from misreading the rate. They come from a contract that assumes a treatment the facts do not support.
The going concern exemption has three requirements. The supplier must carry on the enterprise until settlement and the buyer must be registered. Both must also agree in writing that the supply is of a going concern. If any of those fails on the day, the supply is taxable, and where the contract expressed the price as GST inclusive the seller pays. The margin scheme has its own conditions, including how the property was originally acquired. It cannot be applied after the fact if the contract did not provide for it. None of these problems is expensive to prevent. All of them are expensive to discover at settlement, because the parties have committed and the money has moved.
From a precedent clause to a treatment that matches the facts
We start with what is actually being supplied and who the parties are, including the registration status of each. That determines the treatment, and the treatment determines what the contract should say.
Where an exemption or the margin scheme is available, we set out the conditions and confirm they can be met by settlement rather than assumed. Where the supply is taxable, we make sure the contract says whether the price is inclusive or exclusive. We also check that the tax invoice and input tax credit mechanics work. The result is a transaction where the GST is a known amount with a known owner, not a figure that appears on settlement day.
How we confirm the GST position
Confirm the treatment, then make the contract say it.Classify the supply
We work out what is being supplied, and whether it is taxable, input taxed or GST free.
Test the exemptions
We check the going concern conditions and margin scheme eligibility against the facts, rather than assuming them.
Fix the contract
We make sure the GST clause reflects the actual treatment, and that the invoicing and credit mechanics work.
GST confirmed before the contract locks it in
GST feels like it should be a simple calculation, and then a settlement statement arrives with a figure nobody budgeted for.
One of our lawyers is a Chartered Tax Advisor with The Tax Institute and has held that credential for 25 years. We are also recognised in Doyle’s Guide for tax law. We advise on the GST treatment of property developments, business sales and restructures, and we draft the clauses that carry it. We would rather spend an hour on the going concern conditions now than argue about who bears the liability afterwards.
Our great lawyer guarantee
Six principles we hold to, whatever you bring us and however long it takes.
Take the time
We listen carefully to understand what you want to achieve, then step you through the advice and the documents.
Share our knowledge
We pass on as much as we can, so you can make your own informed decisions.
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Confirm the GST before you sign
Send us the draft contract and the details of both parties. We will confirm the GST treatment, check any exemption you are relying on, and tell you what the contract needs to say.
More on this area of law
Read more about GST on property and business transactions, and how ADLV Law can help.
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