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Paying GST for the Purchase of Commercial Property

Client’s often come to me asking me to draft up or review their commercial property purchase or sale contract. The first thing they will tell me is the price, and the first question I ask is ‘plus or including GST?’

Whilst a lot of the time the GST Exemption for a Going Concern applies, it doesn’t always. Whilst the client might be saying, for example, that the price includes GST, sometimes to the other party has other ideas and it may not be enough to blindly rely on a mistake that is in your benefit.

The case of A & A Property Developers Pty Ltd v MCCA Asset Management Ltd2 (A & A Property Developers) illustrates a very important point; clear discussions and drafting is required to ensure both parties are on the same page when it comes to the payment of GST. This is particularly the case if you are buying off the plan, or using a contract that is not one of the easier to use standard form contracts such as in an REIQ or ADL template.

What happened?

In the case of A & A Property Developers Pty Ltd v MCCA Asset Management Ltd2 (A & A Property Developers) –

  1. The seller thought they were getting $2.9million + GST; and
  2. The Buyer thought they were paying $2.9million including GST.

A recipe for disaster!

This property was being sold in Victoria where the standard contract terms provided that the Seller paid GST out of the purchase price (ie. purchase price included GST) unless the box in the reference schedule beside the purchase price was completed with “plus GST”.

In this case the box was just completed with “GST”. So, it read “$2,900,000.00 GST”. The amount payable was ambiguous. The Court looked at the events leading up to the execution of the contract, the circumstances of the case and other external documents and emails to determine what the parties meant.

Clearly, the answer will be different depending on the parties and the circumstances. However, in this case, the Court (on appeal) found that the parties intended the purchase price to be exclusive of GST and the buyer was required to pay $2.9 million + GST.  Lucky for the Seller or otherwise 1/11th of the Purchase Price would have been coming out of their back pocket!

Take Home Message

Be clear! Talk about GST. Is the price we are negotiating ‘plus GST’ or ‘inclusive of GST’. If you intend for the Going Concern, farm land or another exemption to apply – talk to your lawyer and accountant before signing and ensure this is reflected!

If you are currently negotiating a contract to purchase or sell property in Queensland, we strongly recommend that you obtain financial and legal advice. Feel free to give us a call (1800 640 509) or contact our team today.