In December 2013, the Federal Government confirmed that it would proceed with the proposal to replace the GST-free going concern and farm land exemptions with a new ‘reverse charge’ mechanism.


Currently, supplies of going concerns (broadly, an operating business) maybe treated as being GST-free. Supplies of farm land (on which a farming business has been carried on) can also be GST-free.

Without the GST-free exemption, the seller would be obliged to charge GST (treating the sale as a taxable supply), which the purchaser would be able to claim an input tax credit (as a creditable acquisition).

Primarily benefiting the purchaser, the current treatment of supplies of going concerns and farm land as GST-free provides two main benefits:

  • cash flow benefit – in that a purchaser does not have to fund (or finance) the cost of the GST component of the purchase price between the date of the payment of the consideration and the claiming of the input tax credit from the Australian Taxation Office;
  • stamp duty benefit – this arises because the duty regimes in the States and Territories levy stamp duty on the GST inclusive price, where GST is chargeable.

Understandably, this creates a tension between the interests of the vendor and the purchaser in any such transaction. The purchaser will be anxious to treat the transaction as GST-free. The seller, on the other hand, will want to ensure certainty as to the tax treatment of the transaction as a taxable supply so that it will not be subject to a later assessment of GST (and associated penalties) by the ATO.

It is for this reason that the Board of Taxation recommended that Government consider that the concession be achieved through the adoption of a ‘reverse charge’ mechanism rather than treating the transaction as a GST-free supply with the effect that a wider range of supplies of going concerns would benefit from the concession.


Under a reverse charge mechanism the obligation to pay GST shifts from the supplier to the recipient. Accordingly, the purchaser of a supply is responsible for paying GST on the supply that would otherwise be paid by the supplier. The purchaser may also be entitled to claim input tax credits in the same period. The mechanism also removes the necessity for any later adjustment to be made.


The benefits of adopting this mechanism include:

  • the seller, particularly receivers or mortgagees, no longer having to address all risks associated with treating supplies as GST free – for instance considering whether an enterprise has ceased operating, or if all things necessary for the continued operation of the enterprise are in fact being supplied;
  • purchasers who do not want to acquire all things necessary for the continued operation of an enterprise can still claim input tax credits for the actual things acquired in the transaction to offset the GST payable so effectively no GST will be paid on the acquisition – for instance if the recipient already conducts a farming business nearby and does not wish to acquire duplicate equipment from the supplier.


Until draft legislation is released later this year there is uncertainty as to how the reverse charge mechanism will operate. The only thing that is currently certain is that the amendment is to apply from royal assent, rather than on 1 July 2011 as previously announced.

Depending on the drafting of the amendments, the duty savings currently attributable to GSTfree transactions may no longer be available. The various Offices of State Revenue have yet to release any guidance on their proposed treatment of these arrangements, but there is a risk that the payment of GST by the purchaser could be treated as the assumption of a liability that is included in the consideration on which duty is calculated.

It is also possible that the proposed legislation may provide that the GST liability which arises for a purchaser be payable in the future in the event of a later supply of farm land to an unregistered purchaser. This is because the reverse charge mechanism relies on the recipient (purchaser) being registered for GST.