Developer Ordered to Compensate for GST

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On 14 May 2020 the Federal Court, Lee J, in Lloyd v Belconnen Lakeview Pty Ltd (No 2) [2020] FCA 698, ordered a Canberra developer to pay $29,914 to the purchaser of an apartment.  This amount was the equivalent of what would have been the GST component on the acquisition price and was awarded on the basis that the developer failed to amend the sale contract to reflect the change of GST status from taxable supply to input taxed.

The judgement comes on the back of the Federal Court’s decision last year that the developer may have engaged in misleading and deceptive conduct when the developer sold apartments claiming GST was  included in the price: Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177.

In the original case, the developer had obtained real property under a 99-year lease and then developed apartments which it allegedly marketed as being subject to GST.  However, the developer had obtained a private ruling stating that the sale of the units would be input taxed.  The Federal Court said in their original judgement that it was up to each purchaser to take action against the developer for restitution based on the alleged misleading conduct.  The purchaser did so and in this case won compensation in the form of the GST component.

The lesson learned here and in many other GST issues we have encountered related to property, is that parties need to do adequate GST due diligence.  Purchasers and vendors need to ensure that sale contracts and any subsequent variations, reflect the appropriate GST status and/or their agreed intentions to apply the margin scheme or sale of going concern. 

Failure to do so could be a costly and stressful mistake, often leading to over or underpaid GST and unpleasant surprises when input tax credits are reviewed by the ATO and denied due to inadequate or incorrect documentation supporting the GST position of the parties.  We recommend that accountants encourage their clients to seek their assistance in reviewing property contracts prior to entering into these significant transactions.

If you would like to discuss property transactions and their GST implications, please contact Mimi Ngo.

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