Yesterday the Tribunal handed down its decision in Rod Mathieson Truck Hire Pty Ltd as trustee for the Mathieson Family Trust and Commissioner of Taxation [2013] AATA 496 which affirmed the decision of the Commissioner that the taxpayer was liable for GST on the entire amount of consideration payable for the sale of land, notwithstanding that part of the consideration was lent to the purchaser under a vendor finance arrangement and the loan was only partially repaid.

The case illustrates the need to take care in structuring transactions and that different GST outcomes can arise out of transactions which on the surface may appear the same, but have different legal outcomes.

The facts were as follows:

• the taxpayer agreed to sell property to the purchaser for a price of $3,177,650 plus GST.
• the purchaser was unable to pay the whole amount of the purchase price and at settlement the purchaser paid the sum of $2,017,885 and the parties into a document described as a Settlement Balance Facility Agreement (whereby the taxpayer advanced the sum of $1,498,682.69 to the purchaser which was to be paid to the vendor at settlement).
• The advanced monies required to be repaid after settlement, but payment was not made. A deed of variation was subsequently entered into whereby $500,000 was to be paid and three developed lots were to be transferred to the taxpayer – the money was paid, but the lots were never transferred

The Commissioner contended that the taxpayer had received full consideration for the transfer of the land at settlement, being the payment of $2,017,895 and $1,477,520 through the Settlement Balance Facility Agreement. Both these payments fell within the definition of “consideration” in s 9-15 of the GST Act.

The taxpayer contended that it was erroneously made liable to account for GST on consideration which was promised but had not been received. It contended that the proper approach was to look at the substance and reality of the transaction which amounted to a deferral of payment of the purchase price under the contract of sale (part of which was never paid). Alternatively, the loan transaction (if properly so-called) was simply ancillary to a single or dominant supply under the contract of sale.

The Tribunal distinguished between this case (being a loan of part of the purchase price) and one where a sale is made on credit, which may well have had a different GST outcome. As noted at [23]:

However, there is a clear distinction between a sale on credit and the dealings here between the Trust and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. There may have been other options than the one employed by the parties when it became apparent that the Purchaser did not have the money to complete. A differently structured solution, in the circumstances that transpired, may have led to a different GST outcome. However, the Trust and the Purchaser adopted the method outlined above, and the fact that things did not turn out as planned is not an opportunity to recast what has already occurred.

The Tribunal concluded that there was plainly a loan agreement and a loan. Further, the obligation to advance the loan monies was set-off at settlement against the purchaser’s obligation to pay for the Property (thereby constituting full consideration). Thereafter, the taxpayer’s rights against the purchaser were not under the Contract of Sale (eg, as recovery of unpaid purchase price), but under the Settlement Balance Facility Agreement and the Mortgage which secured the loan.