Excluded Transaction Exception
If the business (whole or part thereof) is transferred as a going concern, the supply of the related assets can be treated as an excluded transaction.
This means that the supply is neither a supply of goods nor services. GST is not chargeable on the transfer of assets as a result.
Qualifying as an Excluded Transaction
To qualify as an excluded transaction, the transfer of business assets must satisfy all the following conditions:
- The supply of assets is made in connection with the transfer of a business. It must not be a mere transfer of assets. The transfer of assets must have the effect of putting the transferee in possession of a business.
- The transferred assets must be used to carry on the same kind of business as that of the transferor.
- If only a part of the business is transferred, this part of the business must be able to operate on its own.
- After the transfer is completed, there must be continuity of the business. There should not be immediate termination of the business, other than temporary closures to allow the business to be operationally ready.
- The transferee must already be a taxable person or immediately becomes a taxable person as a result of the transfer.
Proper records must be kept on each transferred asset by both the transferor and transferee. Information to be kept includes the assets' description and value. Also, both parties must be able to reconcile the difference in the value of assets immediately before and after the transfer with the value of the transferred assets.
Example: Conversion of Business
A transfer of business as a going concern can arise from a pure change of legal constitution of an entity.
Law firm "Y" is a GST-registered partnership. The partners decide to convert the partnership into a limited liability partnership (LLP).
On the transfer date, the LLP becomes GST registered. The LLP takes over Y's assets and liabilities and continues to operate the same business.
The transfer qualifies as an excluded transaction as all of Y's assets, operations and processes are handed over and continued in the same manner by the LLP, the newly GST-registered entity.
Do I still need to submit my GST returns after I have transferred my business to another taxable person?
Yes. So long as you are GST-registered during the prescribed accounting period covered, you are required to submit GST returns.
If you do not expect to make taxable supplies in the next 12 months, you are required to apply for cancellation of GST registration online at myTax Portal.