How 'going concern' can be GST concern

When a business changes hands as a "going concern", the transaction may be zero rated. This means no GST is paid by the seller or claimed by the buyer.

The advantage of zero rating is to minimise the money the buyer needs to pay. Without zero rating, GST would be paid to the IRD and then claimed back - a pointless exercise.

Arguments developed between buyers and sellers as to whether the business was a "going concern", so the law was changed to require a written agreement confirming this. In addition, both parties must be registered for GST.

Recently, a property was sold to a buyer (or nominee) and the agreement contained the words "as a going concern". The seller expected the buyer would be GST registered and assumed there would be no GST to pay. However the buyer did not nominate the registered person so the buyer was not actually registered for GST. The buyer subsequently registered for GST and made a second-hand goods claim.

In the case I'm telling you about, the buyer claimed the refund. IRD then claimed GST from the seller, who, in turn, sued the buyer. The seller lost the case under section 78E of the Goods and Services Tax Act 1985, which gives a right of recovery because the contract stated that the price was "GST inclusive".

You should also be aware there is still a common law right to nominate another buyer even though the agreement may not have the words "or nominee" in it. If zero rating, make sure the contract reads "plus GST if any".