In 2008, the Board of Taxation recommended that the existing GST-free exemptions for the sale of a "going concern" and for "farm land" should be replaced with a voluntary reverse charge mechanism.

The recommendation was accepted and endorsed by the Rudd Government.

The Abbott Government subsequently announced its support for the measures and will proceed with the proposal to introduce a new reverse charge.

Existing GST Exemptions

At present, the A New Tax System (Goods and Services Tax) Act 1999(Cth) (Act) provides an exemption for the sale of a “going concern” or for the sale of “farm land”.

Where the requirements for the relevant exemption are satisfied, a taxpayer will be able to treat the sale as GST-free.

The exemption provides purchasers with reduced stamp/transfer duty costs and reduced cash flow costs and is widely used by vendors in the sale of operating businesses and tenanted commercial premises.

In its 2008 report, the Board of Taxation noted that these GST-free exemptions do not interact well with some of the other provisions of the Act, in particular the post-sale adjustment provisions.

What is a reverse charge?

Under a reverse charge system, the sale of a going concern or the sale of farm land will be treated as a taxable supply and not a GST-free supply.

The parties may agree in writing that the GST will be reverse charged so that it is payable by the purchaser and not the vendor.  The purchaser is then able to voluntarily self-assess the GST on the transaction as if it were the vendor and the purchaser can claim any input tax credits in the same tax period.

If the parties do not agree to allow reverse charging to apply, the vendor will need to account for GST in the usual manner.


Provided the purchaser is entitled to full input tax credits on its acquisitions, any cash flow benefits achieved under the current system should be retained under the new reverse charge system.  This is because the purchaser’s reverse charged GST liabilities and input tax credit entitlements should net out to nil in the same Business Activities Statement.

While existing cash flow benefits for purchasers should still exist, there is a risk that historic stamp/transfer duty savings will be lost.

It is possible that State and Territory revenue authorities will take the view that the purchaser’s agreement to apply the reverse charge means that the purchaser has voluntarily assumed a liability of the vendor.  Such assumed liabilities can form part of the consideration for the transfer of dutiable property and there is a risk that duty will be assessed on the purchase price plus the GST liability assumed by the purchaser (i.e. the reverse charged GST).


The Government has not yet released draft amending legislation but has indicated that it will do so sometime in 2014.

What To Do

Upon release of the amending legislation, the Government or Treasury will likely call for submissions as part of a public consultation process.  You may wish to provide your comments or feedback on the proposed amendments and how they will impact you and your industry.

Once the legislation has been passed, it will be necessary to consider drafting appropriate GST clauses for inclusion in any sale contracts.