Forfeited Deposits And GST

The ATO has published a Decision Impact Statement in response to a recent High Court case, ending the uncertainty surrounding the GST treatment of forfeited deposits where the contemplated supply is GST-free or input taxed.

High Court decision

In May 2008 we reported on a recent High Court¹ decision which confirmed that GST is payable on deposits forfeited under land sale contracts where the underlying supply is subject to GST.²

Unfortunately, the High Court decision did not address whether GST is payable on deposits forfeited where the contemplated supply is GST-free or input taxed.

ATO Decision Impact Statement

The ATO, in its recent Decision Impact Statement³ has now ended the uncertainty around the GST treatment of forfeited deposits where the contemplated supply is GST-free or input taxed.

Prior to this High Court decision, the ATO considered⁴ that GST is payable on all forfeited deposits, even on deposits forfeited under contracts where the underlying supply is GST-free or input taxed.

However, the ATO in its Decision Impact Statement now confirms that this view will no longer be followed. That is, the ATO confirms that no GST is payable on deposits forfeited under contracts where the underlying supply is GST-free or input taxed.

The ATO advises that the Commissioner will amend GSTR 2006/2 to reflect this view and that taxpayers can rely on this statement of the ATO in its Decision Impact Statement ⁵.

Consequences

As a consequence of the Decision Impact Statement, taxpayers may be entitled to a GST refund if GST was paid on a forfeited deposit where the underlying supply was not subject to GST.

Call gadens lawyers for advice on whether you may be entitled to a GST refund.

Footnotes

1 FC of T v Reliance Carpet Co Pty Ltd, [2008] HCA 22
http://law.ato.gov.au/atolaw/view.htm?locid='JUD/2008ATC20-028'&PiT=99991231235958

2 gadens lawyers' Property update - May 2008
click here

3 Decision Impact Statement regarding FC of T v Reliance Carpet Co Pty Ltd
http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/M163/2007/00001

4 Goods and Services Tax Ruling (GSTR) 2006/2 – Goods and services tax: deposits held as security for the performance of an obligation
http://law.ato.gov.au/atolaw/view.htm?locid='GST/GSTR20062/NAT/ATO'&PiT=99991231235958

5 The Decision Impact Statement states "This paragraph is a public indirect tax ruling for the purposes of section 105-60 of the Taxation Administration Act 1953 (TAA) in relation to the application of paragraphs 9-30(1)(b) and 9-30(2)(b) to cases of forfeited security deposits"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.