The Assistant Treasurer, Arthur Sinodinos, announced in
mid-December 2013 that the Federal Government would proceed with
the changes to the GST treatment of 'going concerns' and
Currently the sale of a business or leased commercial premises
could be GST-free if the transaction is considered the sale of a
going concern. The sale of farmland is also GST-free. However it is
proposed to change the rules by replacing the existing GST-free
treatment with a "reverse-charge" mechanism.
Current rules for sale of a going concern
Currently, the supply of a going concern may be classified as
GST- free where certain requirements are satisfied.
For a sale of a going concern to be GST free, the following
requirements need to be satisfied:
everything necessary for the business's continued operation
is supplied to the buyer;
the seller carries on the business until the day it is sold,
that is, until settlement;
the buyer is registered or required to be registered for
payment is made for the sale; and
before the sale, the buyer and seller agree in writing that the
sale is of a going concern.
If you are seeking to treat the transaction as GST
–free care should be taken to not only ensure there is a sale
of a going concern but the transaction documents drafted meet the
The main benefits of treating the transaction as a sale of a
going concern and therefore GST-free is twofold:
The cash flow impact for the purchaser of not having to fund
the GST cost upfront.
Any stamp duty payable on the transaction is payable on the GST
inclusive price hence if the transaction is GST-free there will be
stamp duty savings to the purchaser.
The Board of Taxation has recommended that the GST treatment be
changed as follows:
The sale of a "going concern" 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. Otherwise the vendor would need to account for
GST as if it was a normal taxable supply.
Both the vendor and purchaser must be GST registered.
The parties may also be able elect to apply the "margin
scheme" if land is being sold as a part of a going concern
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
In respect of the stamp duty benefit, 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 voluntarily 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.
As to when the proposed changes will take effect, 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 legislation will apply
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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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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