In this article:
Commercial Property – The perils of using standard GST clauses
Residential Property – Vacant land and GST – a tap is not enough
Property – GST and the Margin Scheme
Commercial Property: The perils of using standard GST clauses
Recent case law in New South Wales has reinforced the need for commercial property contracts to specifically deal with the treatment of GST on a transaction by transaction basis rather than relying on standard GST clauses. Australia’s GST legislation does not provide for a statutory right for a supplier to recover GST.
The cases highlight the need for commercial property contracts to be reviewed by a specialist GST lawyer rather than the parties relying on standard contract GST clauses. In both cases, there was a dispute regarding the written terms of the standard contract and the oral evidence of the parties concerning the GST treatment of the transaction. In one of the cases, Tam v Mannall [2010] NSWSC 250, the vendor was held to have sold the property for a price inclusive of GST which resulted in a reduction of sale proceeds by 10%.
On a practical basis, commercial contracts in general should be reviewed so that:
- The contract does not provide that it is merely “subject to GST” as this does not determine whether or not GST is actually payable in addition to the purchase price.
- The parties are wary of applying precedent standard GST clauses in a commercial contract as the GST position in a commercial contract should be considered on a case by case basis.
Residential Property: Vacant land and GST – a tap is not enough
The ATO has just released its Decision Impact Statement concerning the Full Federal Court decision in Vidler v FCT [2010] FCAFC 59.
In Vidler v FCT the central issue was whether land that is zoned for residential use but which contains no shelter or basic living facilities is 'residential premises' as that term is defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 ("GST Act"). In particular, the court was asked to consider whether it came within paragraph (b) of the definition - 'land or a building that...is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation'.
The appellant in Vidler v FCT had bought and subsequently sold two blocks of land. Each block was zoned residential, did not contain any buildings or living facilities and was either connected to, or had access at the boundary of the property to, utilities such as sewerage, water, gas or electricity. The appellant had treated each sale as an input taxed sale of residential premises under subsection 40-65(1) of the GST Act. The court accepted the ATO’s argument that the mere existence of a tap in the middle of a block of land does not transform the land into "residential premises" for the purposes of the GST Act.
The court concluded that, at the time of sale, neither block of land was 'residential premises' within the meaning of s 40-65(1) of the GST Act because it was not capable of being occupied as a residence or for residential accommodation.
The Decision Impact Statement says that vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be, or intended to be, occupied as a residence or for residential accommodation. Accordingly, property developers need to exercise caution when treating sales of vacant land as an input taxed sale of residential premises.
Property – GST and the Margin Scheme
Another recent case again serves to highlight the importance for seeking appropriate taxation advice prior to entering into a contract. In Corymbia Corporation Pty Ltd v Commissioner of Taxation [2010] AATA 401 a property developer, following the sale of 98 lots, sought to claim the margin scheme under Division 75 of the GST Act in respect of the sale of the lots on the basis that it reduced its GST liability. The Commissioner concluded that the taxpayer was not entitled to apply the margin scheme.
The contracts for the sale of the lots did not include any agreement with respect to the margin scheme. In order for the margin scheme to apply under section 75-5 of the GST Act, the parties to a contract must record an agreement that the margin scheme will apply in writing. The Commissioner may allow the taxpayer extra time to secure a written agreement after the sale is completed, but the Commissioner does not have the discretion to waive the requirement to obtain an agreement in writing.
Importantly, the AAT held that the taxpayer's evidence from an accountant and two solicitors that indicated that the parties would have agreed that the margin scheme would apply if the matter had been raised at the time of sale, was not enough.
In summary, the case reinforces the need for proper consideration to be given, prior to a contract being signed, as to whether the parties wish to avail themselves of the margin scheme.
Paul Petersen
Solicitor
Griffiths Parry Lawyers