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This is a reminder that goods and services tax (GST) does not only apply to the purchase price of real property but also settlement adjustments.

Under s9.5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), consideration includes:

  • any payment, or any act or forbearance, in connection with the supply of anything, and
  • any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

In most land contracts, the supplier (vendor) requires both the purchase price and adjustments be paid at settlement by the recipient (purchaser) in return for possession and title documents (including virtual or electronic) of the real property. In these contracts, the consideration includes both the purchase price and adjustments.

This is reiterated in ATO Ruling GSTD 2006/3 (Ruling). It is specified in the Ruling that outgoings adjustments in favour of either the supplier or the recipient of the supply of real property should be taken into account in determining the consideration.  This means that the consideration, after taking into account all adjustments, can be less than the purchase price if such situation arises, albeit unlikely practically.

If you are a vendor of a significant transaction, special attention should be paid to the drafting of GST clauses. A well drafted GST clause should impose a positive obligation on the purchaser to pay GST on the whole consideration.

If you would like to discuss this article with us further, please contact Mike Ellis, Partner, or Yanlie Leung, Senior Associate on (02) 9261 5900.