Transfer of Business Assets Upon Death & GST

Upon a person’s death, their property vests in the executor or administrator of their estate. The transfer of assets to a beneficiary, such as the widow, is legally a distribution from the deceased’s estate. For GST purposes, this distribution is a “supply”.

The death of a sole proprietor results in the cessation of their personal taxable activity under section 5(3) of the GST Act. This deemed supply would typically trigger an output tax liability based on the open market value of the assets, as per section 10(7A) of the GST Act.

Can GST Neutrality be achieved?
There are two primary ways to ensure the transfer is GST-neutral: treating it as a supply for NIL consideration between associated parties, or as a zero-rated supply of a going concern.

Supply between associated registered persons at NIL value

This is the most direct approach for distributions from an estate.

- Associated Persons: The deceased’s estate and the widow (as a beneficiary and likely a relative) are “associated persons” for GST purposes.

- Supply for No Consideration: The transfer under the will is a supply for no consideration.

- The General Rule and the Exception: Normally, a supply to an associated person for no consideration is deemed to take place at its open market value (section 10(3) of the GST Act). However, this valuation rule does not apply if the recipient (the widow) is GST–registered and acquires the goods and services for the purpose of making taxable supplies (section 10(3A) and section 10(3AB)).

- Outcome: Because the widow is GST-registered and will use the assets to continue the business, the value of the supply is treated as the amount actually paid, which is nil. The transaction is revenue-neutral as intended by the legislation.

1. Zero-Rated Supply of a Going Concern

Alternatively, the transfer can be structured as a zero-rated supply of a going concern.

- Supply of a Going Concern: The disposition of a taxable activity as a going concern is deemed to be a supply of goods (section 5(12) of the GST Act).

- Zero-Rating Conditions (section 11(1)(m)): The supply can be charged with tax at the rate of 0% if:
  - The supply is of a taxable activity from one registered person (the estate) to another registered person (the widow).
  - The supply is of a business that is capable of being carried on by the purchaser
  - - The parties agree in writing that the supply is of a going concern.

- Zero rating of land : (section 11(1) (mb)) transferee & transferor must be GST registered and land must be used by transferee for the purposes of their taxable activity.

- Outcome: If these conditions are met, the estate would return the supply as zero-rated in its final GST return.

What if there is no intention to continue the taxable activity ?

- The estate will be liable to pay output tax on the open market value of the business assets distributed to the widow.

Deemed Supply

- Section 5(3) of the GST Act provides that when a registered person ceases to carry on a taxable activity, all goods and services forming part of the assets of that activity are deemed to be supplied by that person in the course of the activity. This deemed supply occurs immediately before the person ceases to be registered.

- As the widow will not continue the business, there is a definitive cessation of the deceased’s taxable activity, triggering this rule. The distribution of assets is considered to be done in connection with the ending of the activity.

- The deemed supply of the business assets is a taxable supply, and the estate must account for output tax. The value of this supply is determined by section 10 of the GST Act.

Valuation at Open Market Value (Section 10(7A) and Section 10(3) of the GST Act)

- Supply on Cessation: Section 10(7A) states that when a supply is deemed to occur under section 5(3) due to cessation of registration, the consideration for that supply is its open market value. This is the primary rule applicable in this scenario.

- Supply to an Associated Person: The distribution from the estate to the widow is a supply to an “associated person” for no consideration. Under section 10(3), such supplies are generally deemed to take place at their open market value.

1. The exceptions to this rule, which would allow for a nil value (sections 10(3A) and 10(3AB)), would not apply. This is because the recipient (the widow) is not registered for GST and is not acquiring the assets for the purpose of making taxable supplies.

EVERY SITUATION IS DIFFERENT

As every situation is different, you may not be able to apply the above. If you are faced with similar considerations and have questions, please do not hesitate to get in touch.

August 2025