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GST disputes in the courts

The last few years has seen a growing list of GST court cases; many between the ATO and the taxpayer. However, many cases have been between the parties to a contract. After more than nine years of GST, it is surprising how often there are disputes about the wording of GST clauses in contracts and even, quite simply, whether the price charged is GST inclusive or exclusive. Incredibly, there are still contracts being executed that don’t even mention GST.

The area where most disputes arise is the sale of real estate, particularly where the margin scheme or the GST free going concern provisions are applied. However sales of businesses are also often a course of dispute.

Adverse consequences for investors

A recent case before the Full Federal Court involved the sale of individual apartments in a hotel complex to investors. The facts in the case were complex but basically the ATO disputed the developer’s treatment of the various transactions involved. There was a clause in the contract designed to protect investors should it be held that GST treatment was different than anticipated. The Court largely upheld the ATO’s view determining that the clause was ineffective on the basis it was confusing and uncertain, thus having potentially significant adverse consequences for investors.

We recommend you seek legal advice on GST clauses before executing contracts, particularly for complex, large dollar or unusual transactions. We would be pleased to work with your legal advisors in this regard.

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