Australia: Australian GST Update - Bye Bye Going Concern?

Last Updated: 19 June 2009
Article by Jonathan Ackerman

The Government has raised a number of GST discussion papers proposing major amendments across broad areas of the GST law. One of the more interesting and controversial proposals is to remove the GST going concern and farm land exemptions and replace them with an optional reverse charge mechanism. In this tax update, we analyse this proposal in some detail. Taxpayers should seek their own advice as to how the proposals affect them


While the publicity and media surrounding the Budget focused on the super, personal tax and corporate tax changes, the Budget contained significant GST announcements. The proposed GST amendments and announced reviews potentially represent the most significant changes to the GST law since GST was introduced almost 10 years ago, including substantive GST reviews in relation to the margin scheme, the GST cross border rules and the financial supply provisions.

One of the more interesting recommendations is to remove the going concern and farm land exemptions and replace them with an optional reverse charge provision. The proposal is of particular relevance to the property industry and to taxpayers that sell their businesses or farm land. The start date for this proposal is 1 July 2010.

The existing law - going concern and farm land

The going concern GST exemption allows the sale of the assets of an enterprise to be sold as GST-free where certain requirements are met. Similarly, under the farm land GST exemption, the sale of farm land is GST-free where certain requirements are met, including that the purchaser intends to carry on a farming business on the land. The going concern exemption is used by businesses across various industries for the sale of their enterprises, including for the sale of tenanted commercial property and property development enterprises in relation to new residential property (recent legislative amendments were made to the margin scheme that impact on these latter arrangements).

The going concern and farm land exemptions are primarily used for the cash flow benefit and, particularly in the property sector, because they reduce the stamp duty payable on the sale of land / assets by the purchaser (since stamp duty is calculated on the GST-inclusive purchase price). However, there have been a number of practical problems with the going concern provisions:

  • The provisions are highly technical with the consequence that many transactions considered to be commercial going concerns by the parties do not meet the technical requirements. An example is where the purchaser already has its own premises and therefore the vendor does not transfer or assign the business premises to the purchaser. This would normally preclude the transaction from being a GST going concern. Where the vendor incorrectly classifies a taxable transaction as a GST-free going concern, it will normally have a significant GST exposure, including interest and penalties.
  • The benefits of a going concern are primarily benefits for the purchaser, not the vendor. However, the vendor ordinarily bears the risk that the transaction will be incorrectly classified as a GST-free going concern. The lack of alignment concerning GST risk and benefit often leads to disputes between the parties.
  • The GST law contains complex adjustment provisions that apply to some going concern transactions. These provisions are not well understood by taxpayers and are often ignored, once again leading to significant GST exposures, including interest and penalties.

Optional reverse charge mechanism proposal

The Treasury discussion paper proposes removing the GST going concern and farm land exemptions from the GST law. The proposal has a number of elements:

  • Normally, the vendor remits the GST on a taxable transaction. Under the proposal, the parties can instead agree to reverse charge the GST on a supply of a going concern or farm land. Under the reverse charge agreement, the purchaser becomes responsible for remitting GST that would otherwise be the responsibility of the vendor. The purchaser is often entitled to claim an input tax credit on the transaction, normally resulting in zero net GST payable by the purchaser.
  • The definition of a going concern will be expanded so that it is easier to meet the criteria. This will more closely align the going concern test with the commercial understanding of a going concern and is intended to reduce the technical complexities highlighted above.
  • A number of consequential amendments will need to be made to the GST law, including amendments to deal with the amount of GST reverse charged, the agreement to reverse charge, supplies between associates, the adjustment provisions, tax invoices and adjustment notes.
  • There will also be a carve-out for the sale of real property to be sold under the margin scheme. The vendor will continue to have the GST liability on the sale of real property that forms part of a going concern transaction where the parties so agree in writing.

The reverse charge mechanism is represented diagrammatically below.

Our analysis

There are a number of potential problems with implementing the reverse charge proposal:

  • It has been suggested that stamp duty is payable on the GST component of the transaction. This is on the basis that the obligation to remit GST has been assumed by the purchaser and therefore forms part of the dutiable value for stamp duty purposes. Given that the primary benefit of the going concern exemption is the favourable stamp duty outcome, it is likely that industry would strongly object if the reverse charge mechanism gave an adverse stamp duty outcome.
  • While the expanded definition of the going concern test is welcome, it will remain a technical test. This means that vendors will continue to bear some GST risk. For example, where the parties agree to apply the reverse charge mechanism to the sale of assets, but the sale does not meet the technical requirements of a going concern, the vendor, not the purchaser, will continue to have a GST liability on the sale. This will expose the vendor to a potentially significant GST exposure, including interest and penalties.
  • The Tax Office takes the view that the assumption of any liabilities by the purchaser in a sale of business assets (such as employee entitlements) will often be treated as an adjustment to the purchase price. This leads to complexities in calculating the GST payable on the sale, which may expose the purchaser to a GST exposure, including interest and penalties. This will particularly be an issue where the purchaser is not entitled to claim a GST credit (for example, the purchaser is a financial institution).

Many taxpayers and industry bodies have questioned the need to introduce the reverse charge mechanism, particularly given the likely adverse stamp duty consequences. Instead, there would appear to be other solutions to the problems that currently afflict the going concern exemption and that will not create further concerns. As discussed above, a significant problem arises where the vendor incorrectly classifies a taxable transaction as a GST-free going concern, as it would normally have a significant GST exposure. Instead of the reverse charge mechanism, it would be possible to resolve this problem by amending the GST law so that the transaction is still GST-free where the parties have treated the sale as a GST-free going concern in good faith and there is no revenue loss to the Government.

There are also strong arguments that the going concern exemption should be extended to apply to the sale of high value capital assets to reduce both the compliance burden for the parties and the cash flow consequences for the purchaser.

Nevertheless, since the Government has agreed to these proposals in principle, it highly likely they will proceed. If implemented as intended, both vendors and purchasers that propose to use the reverse charge agreement will need specific provisions in their agreements to protect their GST positions.

Submissions in response to the Treasury discussion paper were due in by 10 June 2009 and we expect draft legislation to be released shortly. The proposals in the various reports and reviews are likely to have a significant impact on all taxpayers and we recommend all clients seek specific advice as to how these changes will affect them.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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.