Developers and businesses across the Gold Coast are set to benefit from a Federal Court ruling that found goods and services tax did not need to be paid on a forfeited property deposit, says a Gold Coast legal expert.

Hickey Lawyers partner Joe Welch, who practices extensively in commercial law, said the decision was at odds with Australian Taxation Office policy and could potentially have a significant impact on the region.

“This decision is a coup for high-rise and commercial developers, but could potentially impact on a range of other industries,” he said.

“Arguably, the ruling could apply to any business that takes a deposit, for example airlines, builders or accommodation providers who take deposits that are forfeited for ‘no shows’ or breach of contract.”

The Federal Court ruling, which was handed down last week, was in contrast to an earlier decision made by the Administrative Appeals Tribunal and ATO’s policies.

The case related to a $297,500 forfeited deposit for the purchase of a Victorian property, which the owner, Reliance Carpet Company Pty Ltd, successfully argued was not payment for a taxable supply.

Mr Welch said the ruling was an ‘important win’ for developers of commercial properties and high-rise units sold off the plan.

“The decision entitles developers to keep the whole of the deposit, which is effectively compensation for a loss when a sale does fall through,” he said.

“Previously, developers would lose one-eleventh of the deposit in GST if the buyer defaulted and, to make matters worse, the buyer in default could in some cases get the benefit of a credit for the GST paid by the developer.”

But Mr Welch cautioned that although this decision had set a new precedent, the ATO had indicated an appeal in the High Court was likely.
“I would not treat this ruling as a licence to spend the GST just yet in case the ATO wins an appeal in the High Court and claims back any unpaid GST, which it would be entitled to do,” he said.

“Keep the money in the bank for now and wait for an ATO ruling or final decision from the High Court.”

View Gold Coast Bulletin article

View Tweed Daily News article

View Brisbane Legal article

For further information, please contact

Joe Welch, Partner
Tel: +617 5556 7416
welchj@hickeylawyers.com.au