What is a "going concern"

[TheAnalyst]

Hi,

When I search the properties/business, it often has a "selling as a going concern"? What does it really mean? what the implications to the buyer?

Many Thanks,

 

[Dazz]

That's what the wife calls me when I go for a ride on the Harley.

 

[pulse]

No GST payable

 

[The Fence]

Hi,

When I search the properties/business, it often has a "selling as a going concern"? What does it really mean? what the implications to the buyer?

Many Thanks,

A current operating business and or tenant in place (paying or not!)

Implications are: Check out how the "going" is going....

 

[boods99]

Generally, if the business is sold as a going concern, GST will not apply to the sale price. A going concern means that the business will continue to operate as it did before the sale. This is where there are various "shades of grey" as far as the ATO are concerned. You might need to speak to an accountant as it can get quite complicated

Boods

 

[Player]

Amongst the shades of grey are also length of lease remaining. If lease has reverted to monthly occupancy or if property is sold by previous owner occupier on a lease-back, I am under the impression that these may not qualify as going concerns. So GST would be payable, which you would get back anyway on your first BAS. If it's a small commercial property and rents are below 50,000 pa, the hassle is that you've registered for GST to get the GST back on purchase, and you've got to keep lodging BAS.

Could someone also clarify on that please.

 

[prandsa]

Player is right - if property is sold as a sale and leaseback, you generally don't get the going concern exemption on GST. (However this can be overcome). The property has to be utilised in the business of deriving an income which means it has to be leased to third parties who are paying rent.

If the property you are buying is not considered a 'going concern' then it is considered a 'taxable supply' and will be input taxed accordingly (full 10%). You may get the GST back however through the BAS however the real issue is that you pay stamp duty on the full GST INCLUSIVE price! A tax on a tax - how beautiful!!

The vendor has to nominate that the property is being sold as a going concern and it is also important to get any service contracts; management agreements novated to yourself in the event of an audit. Even if they are only for 10 or 30 days after completion. It is easy to the prove to the ATO the property acquired was an actual operating business.

In relation to a business (as opposed to property), a going concern is basically a business that is sold on a Walk In Walk Out (WIWO) basis. As boods99 said, everything needed to continue the business is included in the sale ie all the plant, the lease on the premises, supply agreements etc.

Anyways, just make sure you get either a good solicitor or account (possibly both) to provide the right advice.
Cheers

 

[TheAnalyst]

Hi Everyone,

My sincere thanks to all your advice. It has given me some picutre what is like.

I have searched some commercials and am generally interested in $1m-1.5m range which is my comfort zone. I want to think big like Dazz, however, it seems there are too many barriars to overcome, such as how to get the money and if I do not have few $mills to be used a buffer.

To my best knowledge, rent in both commercial and residential are quite good at moment. I am looking for a gross return on capital (rent/purchase price) based on current rent at 9-11% (because I have to take into account economic crisis, potential reduction in rent, increase on rate). I could not find any.

I wonder those experienced forum members here what return they are looking at when they do the search?

Many thanks

 

[lazzaman]

As a tenant negotiating the purchase of real estate to carry on with business, would anyone know if it is possible for me to get a gst exemption on the sale? (The vendor's solicitor apparently thinks not)
If not, am I up for gst only on the the value of the building I currently lease or on the agreed value of the whole property? (there being another house on the title which has been unoccupied for some months, and is not included in my lease, but which will be included in the sale).

 

[HiEquity]

I am looking for a gross return on capital (rent/purchase price) based on current rent at 9-11% (because I have to take into account economic crisis, potential reduction in rent, increase on rate). I could not find any.

I wonder those experienced forum members here what return they are looking at when they do the search?

Hi TA

I have been taking an interest in CIPs in that price range around the country. The 9% net figure is relatively easy to come by - 11% very significantly harder (I've only found one and it had rent significantly above market with only a couple of years left on the lease). I'm yet to find a reasonable proposition in Perth at that net yield though if that's where you're looking.

 

[Hulkster]

As a tenant negotiating the purchase of real estate to carry on with business, would anyone know if it is possible for me to get a gst exemption on the sale? (The vendor's solicitor apparently thinks not)
If not, am I up for gst only on the the value of the building I currently lease or on the agreed value of the whole property? (there being another house on the title which has been unoccupied for some months, and is not included in my lease, but which will be included in the sale).

Just buy it in a separate structure to the business and there is no GST payable