A deficiency in the standard NSW Contract for the Sale of Land in treating GST payable on the sale of property by auction has been exposed in the decision of SAMM Property Holdings Pty Ltd v Shayne Properties Pty Ltd  NSWSC 362, a decision of the Supreme Court of New South Wales (Stevenson J) handed down on 4 April 2016.
The proceedings were brought to rectify the Contract so that the purchase price of $3.325 million be treated as plus GST (the vendor’s contention) as opposed to the purchase price of $3.325 million being treated as inclusive of GST (the purchaser’s contention).
At stake was whether or not the purchaser was required to pay an additional $332,500 for GST.
The references in the Contract to GST
The Contract was for the sale of an industrial property at Wetherill Park, Sydney. The property was offered with vacant possession. The property was sold under the hammer at auction.
There were two references to GST in the Contract, namely:
- On the front page, there was choice provided – “GST: Taxable supply NO yes in full ”. The box crossed in this Contract was “ yes in full”, indicating that the GST was payable because it was a taxable supply.
Notes: if the ‘NO’ box is crossed, the reason why it is not a taxable supply must be given, which for commercial property is often that ‘the sale is the supply of a going concern under section 38-325’, that is, it is sold subject to lease.
- Printed clause 13.2 of the Contract reads: “Normally, if a party must pay the price … to the other party under this contract, GST is not to be added to the price…”.
Notes: printed clause 13 deals with GST issues under the contract, referring in some detail to aspects such as a supply of a going concern and the margin scheme. But it does not refer to the situation where the contract says the sale is a taxable supply in full but there is no indication whether the price includes or excludes GST.
There was no additional clause inserted into this Contract to override printed clause 13.2.
The Auctioneer’s announcement concerning GST
The fact that the sale was by auction was the complicating factor in this case.
If the property were sold by private treaty, then the normal procedure is that the vendor’s solicitor ‘grosses up’ the price to include GST and then inserts the GST amount in the box on the cover page which states “GST AMOUNT (optional) The price includes GST of: ”.
The difficulty in following this procedure in an auction situation is obvious – the price is set at the auction and so the GST amount is not known in advance.
For this reason, experienced auctioneers will announce that the bids accepted will not include GST, and that GST will be added to the price when the contract is signed.
In this case, the auctioneer made an announcement, in his standard form, as follows:
The sale today will be deemed a taxable supply therefore GST will be payable, payable by you the purchasers, your bids today are exclusive of GST and GST will be in addition to the knockdown price of today’s auction.
The court findings
The evidence given by the vendor was that if the highest bid were accepted, it was to be plus GST, which was consistent with the reserve price instruction being expressed as + GST.
The crucial evidence given on behalf the vendor was given by the auctioneer. He stated that he had read the announcement. He had also sent a contemporaneous email to confirm his recollection.
The evidence given on behalf of the purchaser was that they understood the auctioneer’s announcement as not varying the Contract, which indicated that the price included GST.
The court could not reconcile the differences between the vendor and the purchaser recollections. And so the court relied upon the auctioneer’s evidence in his email which was that “No GST was added to this figure [$3.325 million] as the sale was deemed to be a taxable supply and GST was to be paid at settlement”.
Accordingly the court found that “the common intention of the parties was that the sale price would be $3.325 million plus GST” and ordered “the contract should be rectified accordingly”.
Would an additional clause clarify the GST liability?
The confusion which arose in this case could have been avoided had a suitable additional clause been inserted into the Contract to clarify the GST liability.
By paraphrasing the auctioneer’s announcement, could I suggest an additional clause which for the standard NSW Contract for the Sale of Land?
Insert after clause 13.11 of the printed clauses, a new clause 13.12:
13.12 If this contract says that this sale is a taxable supply in full, and the GST box is not completed with a GST amount –
13.12.1 the purchaser must pay the vendor on completion an amount of one-eleventh of the price, in addition to the price; and
13.12.2 the vendor will give the purchaser a tax invoice for the taxable supply.
The clause has been drafted to apply to all situations, not only to sale by auction.