The Victorian Court of Appeal recently successfully allowed an appeal from the Supreme Court concerning the GST treatment of a property sale. The decision, in fact both decisions, illustrate the importance of ensuring that the contract of sale correctly sets out whether the price includes or excludes GST and the required due diligence including legal advice needed before signing such contracts.
The case concerned the purchase of a $2.9 million property in Ringwood. General condition 13 of the standard form contract for the sale of real estate included the words “The price includes GST (if any) unless the words ‘plus GST’ appear in this box”. “GST” was written in the box (rather than “plus GST”).
The Supreme Court held in late 2016 that the $2.9 million purchase price was inclusive of GST and therefore the vendor was ‘out of pocket’ for the GST of 1/11th of the $2.9 million purchase price.
In December 2017, the vendor successfully appealed to the Court of Appeal which unanimously held that the purchaser must pay the GST on top of the $2.9 million purchase price. A ‘turnaround’ of more than $550,000.
The Court of Appeal held that objectively construed from the viewpoint of an ordinary businessperson, by inserting “GST” in the box, the parties intended that the purchaser would be liable for the GST (and, in effect, the $2.9 million purchase price was a GST exclusive amount).
While in hindsight the outcome may appear unsurprising, part of the dispute depended on the nature of the property. One of the purchaser’s arguments was that as the property included a dwelling GST was not payable. However, the vendor considered that as the property was uninhabitable, the property was not ‘residential premises’ (as defined), and so GST was payable.
Proper legal advice before signing the contract would have prevented a costly exercise because of a four-letter word.
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