Avoiding GST on new property sale?

[chino]

I am in NSW and the property contract has the following special condition in it (it is one long sentence):

Notwithstanding any other provision in this Contract, the Purchaser states that the Property is not new, and at completion will be residential premises to be used solely for residential accommodation and that thus this sale is an input taxed supply and not a taxable supply save that if the Vendor serves a letter from the Australian Taxation Office stating that the Vendor has to pay GST on the price/sale, the Purchaser must pay to the Vendor on demand the amount of GST payable on the price or in respect of this sale including any additional penalty interest and this clause shall not merge upon completion.

Other facts:

- The property is new. The land was purchased 2yrs ago by the Vendor, the existing house demolished, and two new houses built on top of the land with a common wall (as an aside, there is no cross-easement between the two new properties sharing the common wall -- is this a problem?).
- The real estate agent is marketing the property as 'new'
- The Vendor is a director of the company who drew up the plans for the Development Application.
- The Vendor is a director of another company who built the premises.
- on the front page of the contract, under "This sale is not a taxable supply because the sale is:", the box "input taxed because the sale is of eligible residential premises" is marked.

All new properties are sold GST inclusive, however it appears with this special condition, the Vendor is trying to avoid paying GST? If caught, he has this special condition as a get out as the Purchaser will then have to pay the GST?

Is this a case of buyer beware, or are there any statutory rights that the Purchaser can rely on?

 

[Terry_w]

I am in NSW and the property contract has the following special condition in it (it is one long sentence):

Notwithstanding any other provision in this Contract, the Purchaser states that the Property is not new, and at completion will be residential premises to be used solely for residential accommodation and that thus this sale is an input taxed supply and not a taxable supply save that if the Vendor serves a letter from the Australian Taxation Office stating that the Vendor has to pay GST on the price/sale, the Purchaser must pay to the Vendor on demand the amount of GST payable on the price or in respect of this sale including any additional penalty interest and this clause shall not merge upon completion.

Other facts:

- The property is new. The land was purchased 2yrs ago by the Vendor, the existing house demolished, and two new houses built on top of the land with a common wall (as an aside, there is no cross-easement between the two new properties sharing the common wall -- is this a problem?).
- The real estate agent is marketing the property as 'new'
- The Vendor is a director of the company who drew up the plans for the Development Application.
- The Vendor is a director of another company who built the premises.
- on the front page of the contract, under "This sale is not a taxable supply because the sale is:", the box "input taxed because the sale is of eligible residential premises" is marked.

All new properties are sold GST inclusive, however it appears with this special condition, the Vendor is trying to avoid paying GST? If caught, he has this special condition as a get out as the Purchaser will then have to pay the GST?

Is this a case of buyer beware, or are there any statutory rights that the Purchaser can rely on?

What does your solicitor say?
strike out that clause. You will probably be liable for GST.

 

[Aaron_C]

I think what's happened is the developer is probably not registered for GST so does not think he is liable for the GST upon sale (which may be true as well). It's just a clause to protect him if the ATO thinks otherwise about the GST question.

 

[chino]

Yes it is something we want to get rid of, but we are trying to figure out the motives for having it in there in the first place and our options if for whatever reason they refuse to get rid of it. Unfortunately, we have to assume that it is dodgy unless proven otherwise by the Vendor.

 

[Scott No Mates]

Notwithstanding any other provision in this Contract, the Purchaser states that the Property is not new, and at completion will be residential premises to be used solely for residential accommodation and that thus this sale is an input taxed supply and not a taxable supply save that if the Vendor serves a letter from the Australian Taxation Office stating that the Vendor has to pay GST on the price/sale, the Purchaser must pay to the Vendor on demand the amount of GST payable on the price or in respect of this sale including any additional penalty interest and this clause shall not merge upon completion.

If I am reading the clause correctly, it is the Purchaser ie. you (in the contract) warranting/claiming that the property is not new. The end use of the house makes no difference as to whether GST is payable or not on top of the sale price, save that the vendor should also be passing on the benefit of any gst paid in the development of the property ie using the margin scheme.

The vendor is pushing the responsibility onto you the purchaser to pay the GST if the ATO believes there is an outstanding amount.

As Terry points out, get rid of the clause and leave it as the vendor's problem otherwise he is double dipping.

 

[Terry_w]

Yes it is something we want to get rid of, but we are trying to figure out the motives for having it in there in the first place and our options if for whatever reason they refuse to get rid of it. Unfortunately, we have to assume that it is dodgy unless proven otherwise by the Vendor.

Motive = make purchaser pay.

This type of clause is pretty common on new properties.

 

[Aaron_C]

Motive = make purchaser pay.

This type of clause is pretty common on new properties.

Yep but I think it's only when there is reasonable doubt if GST is payable by the developer. For my OTP sales I know I will have to pay GST for sure so I wouldn't bother trying to sneak this one in, but maybe it's not a bad idea

 

[Terry_w]

Yep but I think it's only when there is reasonable doubt if GST is payable by the developer. For my OTP sales I know I will have to pay GST for sure so I wouldn't bother trying to sneak this one in, but maybe it's not a bad idea

Its worth a try.

The old law firm I worked for had to sue a solicitor in Sydney who had missed advising on this type of clause. Come settlement the purchaser was asked o pay around $150k in GST - which they allegedly didn't know about. Lawyer hadn't advised them.

 

[Aaron_C]

Did they win against the solicitor's PI?

 

[chino]

its an auction so potentially there could be a bidder who rocks up on the day and buys without knowing these details (and it does happen). So i guess from the vendors point of view, it is worth a try.

 

[Scott No Mates]

From memory, the GST legislation requires that the vendor pay the GST on residential property as the price is GST inclusive though perfectly fine for commercial premises. The insertion of such clause may be contrary to the legislation and void. Have your solicitor strike it out.

 

[Aaron_C]

From memory, the GST legislation requires that the vendor pay the GST on residential property as the price is GST inclusive though perfectly fine for commercial premises. The insertion of such clause may be contrary to the legislation and void. Have your solicitor strike it out.

How would it be contrary? The vendor still pays for it but he's just trying to get indemnified by the purchaser.