A recent case before the Victorian Supreme Court (Cityrose Trading Pty Ltd v Booth & Anor  VSC 504, handed down on 19 September 2013) has highlighted the importance for contracts for the sale of real property to clearly specify whether the sale is subject to GST and whether the price is GST-inclusive or GST-exclusive.
The matter before the Supreme Court had involved a company (a trustee of a family trust) that had sold a property to an individual. The issue before the Court was whether the individual was to pay the purchase price on the property sold plus GST. The purchase price was set out in the Particulars of Sale in the contract as $2,250,000.
The Supreme Court reviewed the contract, and in particular, a “special condition” dealing with GST. Although the Court accepted that while the commercial aim of the special clause may have been to allocate responsibility for any GST liability attached to the sale of the property, it considered the contract said nothing about whether the purchase price in the Particulars of Sale was intended to be GST-inclusive or GST-exclusive. Further, it could not discern from the special clause any particular contractual intention of the parties. In conclusion, the Court held the special clause should be removed from the contract. As a result, it said the $2,250,000 amount in the Particulars of Sale should be understood to be inclusive of any GST payable on the sale.
It should be noted that, to date, attempts by vendors to recover GST through the courts via rectification legal action have mostly been unsuccessful. Contracts should reflect the vendor’s liability for GST, if any – that is, a GST-inclusive price. In other words, the sale and purchase agreement must reflect an understanding that the price for the property will be increased by an amount equal to the vendor’s liability. In the above case, the result was that the vendor lost $225,000 in GST.