The Assistant Treasurer has recently announced that the Federal
Government will be removing the current GST free concession, which
can apply in relation to the supply of going concerns, and
implementing a new 'reverse charge' mechanism.
Under the current system, the sale of a business may be GST
free, if the transaction meets certain requirements (for example,
if an ongoing business or farming venture is being sold). If the
transaction is eligible to be a GST free transaction, then the
purchase price for the transaction will be a GST exclusive price,
and the purchaser will not need to pay the vendor an amount for
GST. If the Australian Taxation Office does not consider the
transaction to qualify for the GST concession, the vendor will be
responsible at law for the payment of GST, interest and
There has been little information released to date regarding the
details of the new reverse charge system, however we do know that
under the new system, all transactions will attract GST and the
responsibility for payment of GST shifts from the vendor to the
Certain transactions may be eligible for a 'reverse
charge' mechanism whereby the purchaser, who will be
responsible for payment of GST on the transaction, may claim for
input tax credits (if eligible) in the same tax period, which can
result in a nil GST effect. The purchaser would need to be
registered for GST to obtain this benefit.
The new mechanism is advantageous to vendors, who will lose the
risk of having to pay GST on transactions which have been
mischaracterised as a GST-free going concern.
However, the changes may not be so attractive to purchasers. The
major concern in the new arrangement is the implication it will
have on State imposed transfer duty (stamp duty). Currently, duty
is assessed on the whole consideration for the purchase which, if
the parties have deemed it to be GST free, doesn't include an
amount for GST.
There is speculation that under the new system, the States will
assess transfer duty on the whole consideration for the purchase,
which will include the GST portion and on the true 'purchase
price'. What this effectively means is that on top of GST,
purchasers may end up paying 10 percent more transfer duty than
they would under the current system. Whether this will occur
depends on the drafting of the legislative provisions.
No date has been set for the commencement of the change; however
it has been flagged to occur sometime within 2014. Parties need to
be mindful that contracts entered into now, which don't settle
until after the commencement date of the legislative changes, may
be caught by the changes. Any contracts being entered into now
should consider including provisions dealing with the potential
application of the new arrangement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Kott Gunning is a proud member of
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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”
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).