Australia: GST: Changes for going concern and farm land sales

Tax Update (Australia)
Last Updated: 23 December 2013
Article by Matthew Cridland


The GST Act presently provides an exemption for the sale of a "going concern" or for the sale of "farm land". Where the exemption requirements are met, such sales are treated as "GST-free" supplies that are not subject to GST. On 14 December 2013 the Assistant Treasurer, Arthur Sinodinos, announced that the Government would proceed with a previously announced measure to replace the current GST-free treatment for going concern and farm land sales with a "reverse charge". In this Tax Update we provide an overview on how the reverse charge arrangements may apply and highlight some of the potential implications of the changes.


Presently the "going concern" exemption is available for the sale of an operating business (or part of an operating business, if that part is capable of being operated as a separate enterprise). The going concern exemption is also commonly used for the sale of tenanted commercial premises.

There are a number of conditions that must be met in order for the going concern exemption to apply, including both the vendor and purchaser agreeing in writing that the sale is of a going concern (this requirement is usually addressed in the GST clause in the sale contract). Further, both parties must be GST registered.

There is a separate GST-free exemption for the sale of "farm land". Broadly speaking, that exemption is available where land that has been used to carry on a "farming business" (as defined in the GST Act) is sold to a purchaser which intends that a farming business will be carried on, on the land. Unlike for the going concern exemption, there is no requirement for the parties to agree in writing before the exemption applies. Further, there is no requirement for the purchaser to be GST registered.


Sales of operating businesses, tenanted commercial premises, and farm land are generally material transactions. The key benefit of the current GST-free concessions is that it allows such sales to occur, generally between GST registered businesses, on a GST exclusive basis.

Where the exemptions apply, the purchaser will benefit through:

  1. reduced cash flow costs, as it will not be necessary for the purchaser to pay an amount to the vendor on account of GST and then wait to receive the benefit of an offsetting credit; and
  2. reduced stamp duty costs, as stamp duty generally applies to the GST inclusive price that is paid for a dutiable asset.

It should be noted that is the purchaser that obtains both of these benefits. However, it is the vendor that carries the GST risk if a sale has been misclassified as a GST-free supply.


The current GST-free exemptions, for both going concern and farm land sales, do not interact particularly well with some other provisions in the GST Act (particularly the post-sale adjustment provisions). To address this, and to provide greater certainty to the parties, the Board of Taxation recommended in a report published in December 2008 that the current GST-free exemptions be replaced with a voluntary reverse charge.


In May 2009, Treasury released a Discussion Paper which broadly outlined how the reverse charge mechanism could operate. However, no draft legislation was released and the changes were not enacted.

Based on the 2009 Discussion Paper, a reverse charge could apply as follows:

  • The sale of a "going concern" or the sale of "farm land" will be treated as a taxable supply, not a GST-free supply.
  • If the parties agree in writing, the GST on such sales can be "reverse charged" so that it is payable by the purchaser and not the vendor.
  • Both the vendor and purchaser must be GST registered (including for farm land sales, which did not previously require the purchaser to be GST registered).
  • GST will apply at the rate of 10% to the taxable component of any reverse charged going concern or farm land sale.
  • The parties may also be able elect to apply the "margin scheme" if land is being sold as a part of a going concern sale.
  • The vendor may not be required to issue a tax invoice or adjustment note for the sale.
  • The current adjustment provisions (in Division 135 of the GST Act) that can apply following a going concern or farm land sale will be abolished and not apply.


As noted above, one of the key benefits of the current GST-free exemption provisions is the cash flow benefits available to the purchaser. That benefit should continue if a reverse charge mechanism is introduced, provided that the purchaser is entitled to full input tax credits for its acquisitions. This is because the purchaser's reverse charged GST liabilities and input tax credit entitlements should net out to "nil" in the same GST return. This is illustrated in the worked example below.


It is arguable that if a GST liability is reverse charged and imposed directly on the purchaser, the GST payable by the purchaser does not form a part of the "consideration" provided to the vendor for a dutiable asset, such that stamp duty should not be imposed on the reverse charged GST.

However, there may be a risk that some State or Territory revenue authorities will take the view that the purchaser's agreement to reverse charge the GST means that the purchaser has voluntary assumed a liability of the vendor. Assumed liabilities can form part of the consideration for the transfer of dutiable property. Consequently, there may be a risk that some State or Territory revenue authorities will seek to impose duty on the reverse charged GST.


Property Co owns a small commercial office tower in the Sydney CBD which is fully tenanted. It has decided to sell the building, and assign all tenant leases, for $100 million (excluding GST). Stamp duty is payable on the sale at a rate of 5.5%.

The table below illustrates the different GST treatments that could apply to the sale.

1. Taxable sale - GST payable by Vendor

Price (ex GST) $100 million
GST payable to Vendor @ 10% $10 million
Total payable to Vendor $110 million
Amount subject to stamp duty $110 million. Duty payable on the $10 million referrable to GST, increasing duty cost by $550,000.
Cash flow cost? Yes - Purchaser to fund $10 million GST from completion date until an input tax credit is received.

2. GST-free sale - current going concern exemption applies

Price (ex GST) $100 million
GST payable to Vendor @ 10% $0
Total payable to Vendor $100 million
Amount subject to stamp duty $100 million. Save $550,000 in duty compared to taxable sale.
Cash flow cost? No - Purchaser does not have to pay any GST or wait to receive any credit.

3. Reverse charge sale

Price (ex GST) $100 million
GST payable to Vendor @ 10% $0
Total payable to Vendor $100 million
Amount subject to stamp duty Arguably $100 million, but see discussion on stamp duty benefits above.
GST payable by Purchaser @ 10% $10 million
Credit to Purchaser @ 10% $10 million
Cash flow cost? No - the Purchaser's GST liability and credit entitlement should net out to "nil" in the same GST return.


As a part of the change to the reverse charge mechanism for going concern sales, it had previously been proposed that the "going concern" concept be expanded to potentially cover more sales.

Presently, a vendor that is supplying a going concern must supply "all of the things" that are necessary for the continued operation of the enterprise being supplied. It had been proposed that this be expanded so that the vendor only needs to supply "substantially everything" necessary for the continued operation of the enterprise.

This change could be relevant in circumstances whether the purchaser doesn't want to acquire all of the vendor's assets, as the purchaser already has some assets of its own that it can use to carry on the acquired business. For example, this could potentially be relevant where the purchaser already has its own business premises and does not want to take over the vendor's premises.


The previous Labor Government announced as a part of the 2009-10 Budget that it would adopt the Board of Taxation recommendation and introduce a reverse charge for going concern and farm land sales. However, the required amendments were not legislated.

The Abbott Government has decided to retain this particular GST measure. The Assistant Treasurer's media statement does not provide any guidance on when the legislation may be introduced, other than that it will likely be "during 2014". The media statement also indicates that the changes will apply prospectively from the date the enacting legislation receives Royal Assent.


Apart of the issues outlined above, other implications of the changes may need to be considered. These issues may include the following:

  • The GST treatment of "call options". Generally speaking, the GST treatment of a call option is the same as the GST treatment of the supply that will be made on the exercise of the option. Therefore, if the call option allows the option holder to acquire land or a business on a GST-free basis, the call option will itself be GST-free. Going forward, call options over going concern and farm land assets may instead be taxable supplies.
  • Will Vendors continue to want GST indemnities (including for interest and penalties) in respect of going concern and farm land sales if the GST has been reverse charged? Is the Vendor still at risk of having a GST liability if the parties have misclassified a sale as the supply of a "going concern" or "farm land" (such that the reverse charge option wasn't available)?
  • Will there be circumstances in which it is beneficial for the parties to treat a sale as a taxable supply with GST payable by the vendor, rather than seeking to reverse charge the GST?
  • What transitional arrangements will apply where contracts or options have been entered (but not completed) prior to the date that the reverse charge provisions commence?
  • Will parties need to amend their transaction documents to replace old "going concern" and "farm land" provisions with new clauses relating to the reverse charge arrangements?
  • Will the going concern concept be extended, so that the reverse charge provisions can be applied in a wider variety of circumstances?


Our Tax Team can provide the following assistance in relation to the proposed changes:

  • Preparation of submissions as a part of any formal consultation processes which the Government or Treasury may undertake before enacting the changes.
  • Assistance with understanding and modelling the impact of the proposed changes.
  • Drafting of appropriate clauses for inclusion in transaction documents.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.