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Inclusive or exclusive of GST?

GST, is simple tax that can nevertheless prove difficult in practice.  While compulsory zero-rating will assist in some regard, there will always be transactions where it is necessary to draft special clauses to deal with GST.  Sometimes the clause will reflect the parties’ intentions and everyone will be happy.  Sometimes it won’t.

From the writer’s experience the difference between the outcomes depends in large part on an appreciation as to how the GST liability is calculated and how this is to work in relation to the terms exclusive and inclusive of GST (or plus GST (if any)) as relevant.

Although the Australian GST Act runs to many more pages than the New Zealand equivalent, GST matters don’t necessarily run any more smoothly for the Australians.  This is highlighted by a recent decision finding a special GST clause void for uncertainty.

Background

Mr Booth and Cityrose Trading Pty Ltd entered into a contract for the sale of land. The question for determination was whether Mr Booth was required to pay the purchase price stipulated in the Particulars of Sale as $2,250,000.  or whether he was liable to pay that amount and a further amount on account of GST.

Special Condition 7, related to GST and provided (amongst other things) that:

” 7.2 The consideration payable for any taxable supply made under this contract represents the value of the taxable supply for which payment is to be made;

Where a taxable supply is made under this contract for consideration which represents its value, then the party liable to pay for the taxable supply must also pay at the same time and in the same manner as the value is otherwise payable the amount of any GST payable in respect of the taxable supply.”

Finding of the Court

The Supreme Court of Victoria’s view was that “… the competing constructions [in the Special Condition] are equally ‘open’ (or not) and the Court is unable by legitimate means to divine what the parties should be taken to have intended as to whether Special Condition 7 rendered the purchase price GST-inclusive or GST-exclusive.”

The Court held that the GST clause was void for uncertainty, and was to be removed from the contract. The Court also held that the parties to the contract of sale did not actually reach agreement regarding the payment of GST and the purchase price of $2,250,000 in the Particulars of Sale was therefore inclusive of any GST payable on the sale.

References:

Cityrose Trading Pty Ltd v Booth & Anor [2013] VSC 504, Supreme Court of Victoria, Emerton J, 19 September 2013.)

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