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Monday 1 July 2013

The importance of GST clauses in contracts

Goods and Services Tax (GST) is a standard 10% tax on most goods and services transactions in Australia. Despite having been implemented on July 1, 2000, some contracts continue to inappropriately address or even totally disregard GST clauses.
The Tax Office generally advises that contracts should include clauses that:
  • Recognise whether the contract price is inclusive or exclusive of GST;
  • Clarify if GST has been determined with reference to the margin scheme; and
  • Limit the liability of either party if GST was later found to be incorrect.
A recent case, Duoedge Pty Ltd v Leong & Anor [2013], highlighted this risk:
  • The purchaser tried to recover the GST component from the vendor after the purchaser's claim of input tax credits was disallowed by the Tax Office (residential property has no GST)
  • The contract clearly stated the price was GST inclusive, although the vendor had not remitted GST to the Tax Office; and
  • The court held that no implied terms and conditions could be read into the contract for the purpose of rectification and a claim to recover the GST was denied. To access an overview of the case, click here.
As a result, clauses in a contract may carry significant weight in court and parties not carefully considering the GST position of a transaction may be disadvantaged.
The Tax Office provides a 'Property contract and tax invoice – GST checklist' that deals with GST and property contracts which can be accessed here. The Tax Office further states that in order to claim GST, a valid tax invoice is required.

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