A recent decision of the Supreme Court of Victoria
highlights the cost of not carefully drafting a GST clause –
1/11th of the purchase price to be exact. The case also
illustrates the difficulties in using standard form contracts in
slightly unusual circumstances.
When does the sale of an old house attract GST?
In A&A Property Developers Pty Ltd v MCCA Asset
Management Ltd  VSC 653, there was confusion over the
GST treatment of the sale of a house.
A&A entered a contract to sell an old house for $2.9m. The
contract had a clause stating 'The price includes GST (if any)
unless the words 'plus GST' appear in this box'. In the
adjacent box, the word 'GST' was inserted – but not
The buyer apparently assumed that there was no GST on the sale.
This was an understandable assumption given the property was
neither 'new residential premises' nor 'commercial
However, the seller assessed the property as uninhabitable. The
result was that the sale was not input taxed, but subject to GST.
To make matters worse, the seller also considered it could not
apply the GST margin scheme, meaning the seller had to pay
1/11th of the price as GST.
The seller tried to argue that the insertion of 'GST'
into the contract meant the same as 'plus GST'. That would
have meant the buyer had to pay $2.9m + GST = $3.19m.
What did the Court decide?
The Court concluded that 'GST' – rather than
'plus GST' – was insufficient for the seller to
receive the additional amount equal to its GST liability.
In its reasons, the Court stated that 'The contract provided
a clear mechanism for the parties to give effect to an agreement
that the purchaser must pay GST on the purchase price, but it was
not employed in this instance. The inclusion of the letters
'GST' in the box did not shift the burden of the payment of
GST to the purchaser.'
What are the lessons?
The decision highlights a number of key issues.
The GST treatment should be considered before a purchase price
is agreed. This significantly reduces the chance of a dispute.
If the parties cannot agree on the correct GST treatment, or
they are concerned that the ATO may take a different view, then the
GST clause should be drafted to ensure that those competing
interpretations can be handled.In this case, the parties could have
acknowledged that they would self-assess the supply as taxable, but
if it turned out that the supply was actually input taxed, then the
GST component would be refunded. Alternatively, given the amount
that was at stake because the buyer could not apply the GST margin
scheme on its sales, the parties could have agreed a process for
making a private ruling application to the ATO.
The cost of not paying sufficient attention to the GST clause
can be significant. In this case, a proper GST clause tailored to
the parties' particular circumstances could have made their
intention clear – even if there was an error in using
'GST' rather than 'plus GST' on the front
Our clients' experiences are generally that the cost of
getting the GST clause correct upfront saves time and costs down
the track – both with the other party and for any audit
activity with the ATO.
Cooper Grace Ward is a leading Australian law firm based in
This publication is for information only and is not legal
advice. You should obtain advice that is specific to your
circumstances and not rely on this publication as legal advice. If
there are any issues you would like us to advise you on arising
from this publication, please contact Cooper Grace Ward
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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