The Federal Court has held that a property developer was liable for GST on apartments sold under enforceable contracts that were signed before 1 July 2000 but did not settle until after that date: Central Equity Ltd & Anor v FCT [2011] FCA 908 (Federal Court, Gordon J, 10 August 2011).

Background

The taxpayer was a residential property developer that specialised in land subdivision and the development of strata-titled multi-level apartment buildings. It purchased land in 1999 with the intention of developing residential strata-titled units on the land and selling those units to the public.

It agreed to sell strata-titled apartments "off the plan" to purchasers in two developments. The contracts were signed before 1 July 2000 but did not settle until after 1 July 2000. As at 1 July 2000, construction of one development was 23% complete, while construction at the other development had not commenced. It was after 1 July 2000 that the plans of subdivision creating the titles were registered and the titles were issued for both developments.

Section 7(1) of the GST Transition Act states that GST is only payable on a supply to the extent it is made on or after 1 July 2000. For these purposes, s 6(3) of that Act states that a supply or acquisition of real property is made when the property is made available to the recipient. The issue to be resolved was whether the real property was "made available" for the purposes of s 6(3) on or before 1 July 2000.

The taxpayer argued that property was made available at the time of entry into the contract, ie prior to 1 July 2000 (and so no GST was payable). In other words, the supply took place upon entry into the contracts and that settlement was merely ancillary or a step in "perfecting" the rights and obligations that arose upon entry into the contracts of sale. It submitted that the respective purchasers acquired rights enforceable by specific performance necessary for the completion of the contract. The purchasers also acquired various other rights and accepted various obligations under the contract, were the beneficiaries of any increase in the value of the land and bore the corresponding risk of any reduction in value. The taxpayer submitted that being "made available" could not depend solely on the giving of possession.

Decision

The Federal Court held that the real property was made available on or after 1 July 2000.

The term "made available" is not defined in the GST Transition Act. Gordon J held that the time of substantive performance, being the time at which the recipient obtains that which was bargained for, was the time of supply. Her Honour considered that, as at 1 July 2000, the purchasers of the real estate had not in any sense obtained any real or practical ability to use the strata interests in apartments they had contracted to acquire. For this reason, the relevant property had not been "made available" to them for the purposes of s 6(3) and 7 of the GST Transition. Rather, the property was made available to purchasers at settlement, ie after 1 July 2000. Accordingly, the taxpayer was liable to GST on the supplies, amounting to some $6.5m.

The taxpayer had used the decisions in Brady King Pty Ltd v FCT (2008) 69 ATR 670 and FCT v Reliance Carpet Co Pty Ltd (2008) 68 ATR 158 as support for its arguments, but Gordon J did not consider them relevant or especially helpful, in the main as they were not concerned with s 6(3).

Ancillary matter: validity of refund notice

The taxpayer had actually paid GST on the sales and sought a refund. It lodged a "Notification of entitlement to a GST refund" with the Commissioner in 2008, which stated that it had mistakenly paid GST and that the tax periods covered by the GST refund claim were from 1 July 2000 to 31 May 2008.

There is a limitation period on refunds of GST imposed by s 105-55 of Sch 1 to the TAA. An entity is not entitled to a refund unless the Commissioner is notified within 4 years after the end of the relevant tax period that a refund is due. If the taxpayer's notification was not valid, as the Commissioner contended, the taxpayer would have been outside of the 4-year limitation period to make a claim for the overpaid GST for most of the supplies.

Once it decided that the taxpayer had no entitlement to a GST refund, it was not necessary for the Court to consider the validity of the notification. Nevertheless, "for the sake of completeness", the Court concluded that the notification was valid.

The Court said the notification achieved its objectives, such as identifying the period of the claim (the fact that the claim spanned 8 years did not detract from the fact that the time period was specified). The form also stated details of the refund claim, including "the specific nature of the refund" and "the circumstances under which the refund arise".