• Understanding the GST implications of contracts of sale

A New South Wales Supreme Court case recently handed down, SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362, highlights the importance of understanding the impact GST can have on land and property transactions.

The Supreme Court found that a contract of sale should be rectified to reflect the common intention of the parties. In this case, the contract of sale provided that the sale price of the property was to be inclusive of GST; however, the vendor argued that there was a clear and common intention that the price was plus GST and that the contract should therefore be rectified.

The Supreme Court held that a contract for sale could be rectified if there was ‘clear and convincing proof” that the executed contract of sale did not ‘embody the final intention of the parties.’ The vendor successfully satisfied this test and was able to have the contract rectified.

The amount in dispute was $325,000 (10 per cent of the purchase price). This is a significant cost to bear for not ensuring that the intended GST treatment of the transaction was correctly identified in the contract of sale. As well as an unexpected GST liability arising, there could also be potential penalties and a general interest charge levied by the ATO.

Vendees should therefore ensure that they have a clear understanding of their contract of sale to prevent any significant and unexpected costs arising. To the extent that they are unclear on the GST implications of any contract (land, property or otherwise), appropriate GST advice should be sought.

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