Commercial building sale: going concern, GST and margin scheme

A going concern supply is GST-free only if the supplier and recipient are registered for GST, the supply is of a going concern, and the agreement is in writing. Orion is registered. Nexus is not registered at settlement; a pending application is not enough. The contract wording does not make the supply GST-free. Therefore the supply is taxable. Orion must include GST of 1/11 of $5.5 million, which is $500,000, in its BAS for the tax period containing settlement. Nexus cannot claim an input tax credit unless it is registered and acquires the building for a creditable purpose. If Nexus registers later, that does not retrospectively convert the supply into a GST-free going concern. The practical solutions are to delay settlement until Nexus is registered, or to settle as a taxable supply and price in the GST. The furniture sale is a separate taxable supply; GST is 1/11 of $55,000, or $5,000, unless the furniture is part of the going concern and the going concern conditions are met, which they are not here.

The margin scheme can reduce GST on the building. Orion acquired the building in 2012 for $4 million from a vendor who used the margin scheme, so Orion did not pay GST on acquisition. If Orion and Nexus agree in writing to apply the margin scheme, the margin is $5.5 million less $4 million, or $1.5 million. GST is 1/11 of $1.5 million, which is $136,364, not $500,000. That saves $363,636. But the margin scheme and going concern are alternative treatments: Orion cannot treat the supply as GST-free going concern and also use the margin scheme. Eligibility matters: the margin scheme must be agreed in writing before settlement, the property must be eligible, and Orion must have records of the acquisition. If Orion had claimed input tax credits on the acquisition, the margin calculation would need adjustment. The furniture is not part of the margin scheme unless it is included in the property supply and eligible. Orion should compare the commercial outcome: under the margin scheme Nexus may have a reduced input tax credit, but it is not registered yet, so the immediate cash cost falls on Orion.

If Nexus is registered at the time of settlement, the going concern condition can be met, but the contract must still support the GST-free treatment. The contract already states going concern; if it also records the parties' agreement and the recipient's registration details, the supply can be GST-free. Orion should obtain Nexus's ABN and GST registration evidence before settlement, confirm the leases and business assets are transferred, and ensure the agreement is in writing. If the contract is silent or inconsistent, a variation before settlement is safer. Registration two days before settlement is sufficient if it is effective at the date of supply. If there is any doubt, Orion could settle as taxable under the margin scheme, which may be cheaper than full GST, but it must have the written margin scheme agreement. The worst outcome is to treat the supply as GST-free without evidence, because Orion remains liable for the GST if the conditions are not met.