The Federal Coalition government announced in early 2014
that it would seek to replace the GST going concern exemption with
a reverse charge mechanism. This was in response to a review by the
Board of Taxation, which recommended introducing a reverse charge
mechanism to eliminate complexities associated with the current
going concern rules.
Under the current rules, the going concern exemption allows the
sale of certain assets on a GST-free basis where certain criteria
are satisfied. Such assets include the business of tenanted
commercial real estate. To date, purchasers have benefited from the
going concern exemption through improved cash flow and a lower
stamp duty liability on land transfers. The stamp duty reduction
arises because duty is levied on the GST-inclusive price and where
the going concern exemption applies, no GST is payable.
A reverse charge mechanism would require the purchaser of a GST
taxable supply to remit to the ATO the GST that would otherwise be
remitted by the vendor – effectively shifting the GST
liability away from the vendor to the purchaser. The purchaser
would then be entitled to claim an input tax credit for making a
creditable GST acquisition.
Depending upon the detail of the legislation introducing the
change (a draft of which has not yet been released), the reverse
charge mechanism may potentially lead to greater costs. The state
revenue offices may be required to charge stamp duty on the GST
inclusive price on the basis that, although paid by the purchaser,
the GST is still part of the "consideration" for the
supply of the property in circumstances where the vendor would not
have sold the property on the relevant terms but for the
purchaser's agreement to accept the reverse charge. Therefore,
unless the legislation is carefully worded, or the Federal
Government works with the State governments to introduce amendments
to legislation to ensure stamp duty is not levied on the GST
inclusive price where a reverse charge mechanism applies, there is
a risk that the change may produce unintended consequences.
Last month, it was reported that senior Treasury officials met
with a delegation representing the property industry to ensure the
change was implemented in a way that did not increase stamp duty as
Treasury did not want to implement the change at the expense of
creating an additional burden on the industry.
Draft legislation is due to be released by mid-year, with a bill
expected before Parliament by the end of the year.
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.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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