Issue #11
Have you had to deal with a forfeited deposit?
Forfeited deposits under Victorian standard contracts for the sale of real property can attract GST - so say the High Court in a unanimous judgment in FCT v Reliance Carpet Co Pty Ltd [2008] HCA 22.
Some considerations arising from the decision are identified in the questions posed below.
A more discursive note (including references to the Commissioner’s Decision Impact Statement) is available as a pdf document. The note is obtainable by emailing your request to us at: consult@webbmartinconsulting.com.au and inserting “Reliance Carpet” in the subject line of your email.
Some Considerations at a Glance
- Will a GST liability necessarily result in a diminution of the amount available to compensate the vendor?
- If a vendor should have, but has not, accounted for GST on a past forfeited deposit, what are the implications for penalties and GIC?
- Is GST payable on all forfeited deposits or only those relating to land contracts?
- Where a supply is GST free (or input taxed), does forfeiture of the deposit applicable to that supply generate a GST liability? (For example, is GST payable due to forfeiture of a deposit under a contract providing for a GST-free supply of a going concern?)
- What action should be considered in relation to the form of future transactions?
- What are the implications for forfeiture of deposits under margin scheme transactions?
- Does the decision have broader implications because the Court concluded a forfeited deposit gave rise to a taxable supply on a basis different from the Commissioner’s rationale in GSTR 2006/2?
For assistance in relation to GST on forfeited deposits, please contact Andrew Orange on (03) 8662 3200 or by email andrewo@webbmartinconsulting.com.au .
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