Mar 2017 3 Minutes

Property Contracts and GST (Beware of Contract Wording!)

In A & A Property Developers Pty Ltd v MCCA Asset Management Ltd [2016] VSC 653, the Supreme Court of Victoria has found that GST was not to be added to the purchase price payable under a contract of sale, thereby leaving the vendor out of pocket for the GST component of the transaction.

The case centred on the issue of whether the sale price under a contract of sale was exclusive or inclusive of GST and the effect of including the word “GST” rather than “plus GST” in the particulars of sale.

The parties (A & A and MCCA) entered into a standard form LIV contract of sale which contained particulars of sale stating that:

'[t]he price includes GST (if any) unless the words 'plus GST' appear in this box',

with a blank space in a box next to these words for the parties to fill out as per their agreement.

Additionally, Clause 13.1 of the General Conditions of the contract provided that:

'[t]he purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is "plus GST"'.

The dispute arose because in the executed contract of sale, the box dealing with GST contained the letters 'GST' and not the words 'plus GST'.

The Court considered that the box containing the letters 'GST' in the contract was capable of being interpreted several ways.  Firstly, that GST was to be paid by the purchaser; second, that the parties did consider who should be liable to pay GST but that the parties did not reach a decision; and thirdly, that the letters were inserted erroneously and were intended to be deleted.

The Court was of the view that it should not insert words into a written contract unless it is clear that words have been omitted.  After reviewing evidence of the parties' negotiations, the Court did not find evidence of a mistake concerning liability to pay GST, nor did the Court find that the contract was ambiguous.  The Court therefore upheld the plain meaning of the contract, finding that the purchaser was not liable to pay GST in addition to the purchase price, thereby leaving the vendor out of pocket for the GST component of the transaction.

This case highlights once more that it is essential to consider the impact of GST during contract negotiations and to ensure that written wording is clear as to which party will be paying the GST on the transaction.  We strongly recommend that when entering into negotiations, the GST aspects of the transaction be discussed and that GST clauses in contracts be reviewed and considered for potential risks and traps to avoid costly mistakes after the contract is executed.

If you would like to discuss these matters further, please contact Juanro Prinsloo.