The Assistant Treasurer recently said the government will replace the ‘going concern’ exemption from goods and services tax (GST) with a reverse charge arrangement. So what?
Stamp duty is generally imposed on the total consideration for a transaction, including any amount paid by the buyer to the seller on account of GST. The beauty of the going concern exemption eliminating GST has therefore been to reduce the amount of stamp duty a buyer must pay (with an incidental timing benefit on cash flow).
A superficial reaction to the government’s announcement is that the reverse charge will be an obligation for the buyer to pay GST to the government, therefore a statutory obligation and not ‘consideration’ for the sale.
However the High Court has previously taken a very broad approach to the concept of consideration: it looks to what the seller receives so as to move the transfer.
If the new reverse charge provision is drafted in the same way as the existing provision for supplies by non-residents, it will require the buyer and seller agree to the reverse charge. That agreement (which removes the seller’s GST liability) will also be consideration for the sale.
While that saves the seller, it will cost the buyer an additional 10 percent stamp duty (i.e. stamp duty on the GST).
We’re already engaged with the Property Council of Australia in leading the lobbying efforts that will be required (with both federal and state governments) to avoid this problem.
Meanwhile, let’s hope the “going concern” is not going... going... gone!