The recent Full Federal Court decision of Reliance Carpet Co Pty Ltd v C of T (Reliance Carpet) provides some important guidance on a number of GST issues.
Overall GST treatment on forfeited deposits
First, the decision confirms that a forfeited deposit is not consideration for any supply at all. Until now, it was thought that Division 99 of the GST Act (and GSTR 2006/2) resulted in forfeited deposits being treated as consideration for a supply. Division 99, as it is currently drafted, is now of limited relevance if the Full Court’s decision stands.
Rethink on how to interpret the GST Act
Secondly and perhaps more importantly, the Full Court’s decision took a purposive approach to the interpretation of the GST Act. In Reliance Carpet, the Commissioner argued that the forfeited deposit was consideration for the supply of contractual rights under the contract of sale.
The Full Court, in dismissing the Commissioner’s argument, stressed that the GST Act should not be construed so narrowly as to find supplies of rights or other things where “from a practical and business point of view”, there is no supply within the ordinary meaning. If the Act was construed that way, it could lead to “absurd results which conflict with the purpose and the context of the GST Act”.
Protect your clients (and your) interests
Practically speaking though, Reliance Carpet may have significant implications for your practice, especially if you have clients in industries that involve deposits. Some such industries include those in the travel, property and construction industries.
If your clients have remitted GST on forfeited deposits, what can you do for them? If you are within time, request a refund of overpaid GST.
You have 4 years starting from the end of the GST period in question to apply for a refund. For example, if your client remitted GST on a forfeited deposit in the September 2003 quarter, they have until 30 September 2007 to request a refund.
Although the Full Court decision may be appealed to the High Court, your clients may be out of time to request refunds if you wait up to two years for the High Court process to be exhausted.
Continuing the above example, if you waited until July 2008 to request a refund on your client’s behalf, you would be unable to request a refund for that September 2003 quarter. Instead, your clients may be looking to you for monetary compensation.
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