The High Court of Australia’s decision to uphold the Australian Taxation Office’s (ATO’s) right to charge goods and services tax (GST) on deposits forfeited on property deals fails to clarify how the issue will be treated in different circumstances and industries, according to Deloitte tax partner Andrew Nutman.
In the landmark case of Reliance Carpets v Commissioner of Taxation, Reliance Carpets argued it should not pay GST on the $300,000 it received as part of a 2002 deal to sell a $2.98 million commercial property in Melbourne that fell through. Yesterday, the court quashed a Federal Court ruling in Reliance’s favour.
While tax commissioner Michael D’Ascenzo welcomed the decision, Nutman argued that it “ultimately failed to address the treatment of deposits for GST purposes”.
“[B]usinesses involved in identical land and property transactions will need to ensure they have accounted for GST on deposits. But for businesses supplying land in differing circumstances and businesses in other industries that take deposits, particularly travel, tourism and major retail goods industries, this decision unfortunately does not provide certainty as to the correct GST treatment of forfeited deposits.
“Clearly, this is an issue that will ultimately need to be further clarified in the courts.”
Before the judgement was handed down, Nutman said that if the ATO lost, it could be forced to repay up to $1 billion in forfeited deposits.
