The Federal Government has recently announced that it will be removing the current GST free concession, which can apply in relation to the supply of going concerns, and replacing it with a ‘reverse charge’ mechanism.
No date has been set for the commencement of the change, however draft legislation is due to be released by mid 2014, with a bill expected before Parliament by the end of the year.
It is proposed that under the new regime:
- every transaction of a going concern will attract GST;
- the responsibility for payment of GST will move from the vendor to the purchaser;
- certain transactions may be eligible for a ‘reverse charge’ mechanism whereby the purchaser may claim input tax credits in the same tax period, (resulting in nil GST); and
- the use of the reverse charge will be voluntary and therefore can only be used where both parties agree.
The new mechanism appears advantageous to vendors, whereby the risk of paying GST on a transaction that is incorrectly stated as a GST-free going concern is reduced.
However, the new mechanism appears less advantageous to purchasers, particularly if duty is assessed on the whole consideration for the purchase including the GST portion of ‘purchase price’. Effectively, this means that a purchaser may be liable for more stamp duty than they would currently.
Parties need to be mindful that contracts that will settle after the commencement date of the legislative changes may be caught by the changes, even if the contract has already been signed. Therefore, it may be prudent to consider including provisions in a contract of sale that deals with the potential application of the new arrangement.