|
The High Court has recently handed down its decision in the case of Reliance Carpets and the Commissioner of Taxation. The issue before the High Court was whether a deposit paid in respect of a Contract for Sale of commercial property, when forfeited, was subject to payment of GST on the forfeited amount. In the case all parties were registered for GST.
The High Court decided that the deposit forfeited in that case ($297,500) was subject to GST. The Court considered that there was a taxable supply made when the deposit was forfeited being that certain rights and obligations that were undertaken by the taxpayer (Vendor) under the contract were released when the deposit was forfeited and which came within the concept of a taxable supply.
The Commissioner has issued a Ruling, GSTR 2006/2 which sets out his views on forfeited deposits.
The Ruling suggests that when there is a forfeiture of a deposit then that can constitute a separate supply that may be a taxable supply. The High Court did not agree with that approach but still found for the ATO. The Ruling applies to all deposits that are liable to forfeiture, not just deposits paid on Contracts for Sale of Land and extends to such transactions as purchase of goods, hiring arrangements and also security deposits/ Bank Guarantees paid by Lessees under leasing arrangements or similar. Accordingly, it is prudent (if the supplier is registered for GST and the supply is part of the enterprise) for the arrangement to provide that the deposit should be uplifted by an additional 10% or to provide that the recipient is contractually bound to pay an additional 10% representing the GST that needs to be remitted to the ATO if the deposit is forfeited. The Ruling suggests that even if the deposit was forfeited in a transaction that would be not be a taxable supply because it is input taxed or GST free, the forfeited deposit may be liable to GST. The High Court did not discuss this point.
Of course, the High Court judgement and GSTR 2006/2 do not make liable for GST a deposit that is not a genuine deposit within the meaning of the Ruling or that is refunded to the payer in circumstances where the contract provides for such a refund eg return to a purchaser upon rescission of a Contract, return to a Lessee of a security deposit paid under a Lease.
DISCLAIMER: This
publication covers legal and technical issues in a general way. It is not
designed to express opinions on specific cases. This publication is intended
for information purposes only and should not be regarded as legal advice.
Further advice should be obtained before taking action on any issue dealt with in this publication.
|