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  • 2016
  • Supreme Court Case highlights the importance of getting the GST clauses right in contracts

Supreme Court Case highlights the importance of getting the GST clauses right in contracts

16 Nov 2016
  • Supreme Court Case highlights the importance of getting the GST clauses right in contracts

The Supreme Court of Victoria has found that GST was not to be added to the purchase price payable under a contract of sale in the case of A&A Property Developers Pty Ltd v MCCA Asset Management Ltd [2016] VSC 643.

The parties entered into an agreement in relation to the sale/purchase of a commercial property. The price of the property was stipulated at $2,900,000 with a deposit of $290,000. A standard form contract of sale was entered into in respect of the sale of the property. The contract provided a “tick the box” process in respect of GST and the word “GST” was included in the box and not the required words “plus GST”. This created a point of dispute between the two parties.

The contract also included a generic GST clause within the General Conditions which provided at Clause 13.1 “The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’.”

The purchaser contended that the price was $2,900,000 inclusive of GST and therefore it was not liable to pay an extra amount of GST to the vendor. It contended that Clause 13.1 of the contract was clear in that it was not required to pay GST unless the particulars of the sale specified that the price was “plus GST”.

The Court agreed with the purchaser that the language of Clause 13.1 of the contract was clear, and that the purchaser was not liable to pay an extra amount of GST.  Broadly, it was determined that additional GST would only have been due to the vendor by the purchaser had the particulars of the sale clearly specified that the price agreed was “plus GST”.  As a result of the decision, the vendor was left “out of pocket” and did not receive the $2,900,000 (reduced by its GST liability) that it had expected to receive from its sale.

The decision in this case highlights the difficulties that can arise for taxpayers in ensuring that contracts entered into in respect of the sale of real property reflect their intentions from a GST perspective. Where you are entering into a contract either as a vendor or a purchaser of a property, it is always important to first consider your GST position and then to ensure that the particulars of the GST clauses included within the contract reflect and support that GST position thus avoiding potential unexpected future GST liabilities.

Next article: NSW update.

For more information, contact:

Tony Windle
Tony Windle
Partner & National Head of Indirect Tax Brisbane
Email address https://au.linkedin.com/in/tonywindlegt Tony Windle VCard
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Sian Sinclair
Sian Sinclair
Partner & National Head of Real Estate &... Brisbane
Email address https://au.linkedin.com/pub/sian-sinclair/14/9b0/9b5 Sian Sinclair VCard
View full profile
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