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REIQ Journal : July 2008
Legal Issues A win for the Tax Office: GST payable in respect of forfeited deposit under a commercial contract by Annette Greenhow, Solicitor to the REIQ A recent decision of the High Court of Australia has settled the uncertainty that existed about a seller’s liability to remit GST on a forfeited deposit. IN THE CASE of Commissioner of Taxation v Reliance Carpets Pty Ltd  HCA 22 it was held that GST (one eleventh of the forfeited amount) was payable on a deposit in circumstances where the land contract did not proceed to completion. This decision was based on the fact that the court considered that a supply had been made when the contract was entered into, which satisfied the requirements of the GST Act. The court also considered that a deposit was consideration with several characteristics, including the obligation of the seller to do the things it was bound to do under the contract. The impact of this decision from a real estate agent’s perspective is twofold. Firstly, in the case where GST is required to be paid on a forfeited deposit, an agent will need to ensure that at the time of negotiating the contract this additional cost is taken into account by the seller when agreeing to the amount of deposit required for the particular transaction. It is important, however, that the deposit does not exceed 10 per cent of the purchase price. Secondly, an agent needs to be alert to the possibility of the seller having to remit GST on any forfeited deposit. The agent should encourage the seller to obtain professional advice as to the seller’s liability in any situation where the seller is looking to keep a deposit under a contract where a GST liability arises. Of particular concern are contracts involving commercial real estate or new residential real estate; or in situations where the other requirements of the GST Act are met. Improve your bottom line and stop throwing money away. To help drive costs out of your business and improve your bottom line, we offer a competitive range of business essentials, including office and computer supplies, IT solutions, furniture and facility supplies, promotional marketing and print services, as well as coffee, catering and kitchen supplies. For members savings, please contact Paul Robertson on 07 3365 0873 or 0407 927 055 or email firstname.lastname@example.org 33 Corporate Express Australia Limited ABN 94 000 728 398 67-77 Epsom Road NSW 2018 Australia Phone 02 9335 0555 REIQ Journal July 2008