Facts

The taxpayer entered into 14 contracts to purchase land from a property developer. In accordance with each contract, the taxpayer paid a non-refundable deposit to the developer. The deposit operated in the usual way, to be forfeited if the taxpayer failed to complete and to be applied against the total price upon completion.

The taxpayer “sold” 12 of the contracts to third party purchasers (the Assignees) by way of assignment agreements. The assignment agreements required the assignees to pay two amounts, being a fee for the assignment of the contract (the “Assignment Fee”) and a payment equal to the deposit paid by the taxpayer (the “Deposit Recovery”). The amounts were shown separately in the agreements, but the amounts were paid with a single cheque.

The issue was whether GST was payable by the taxpayer on the Deposit Recoveries.

The decision

The taxpayer contended that there were two separate supplies, being:

• the supply of in interest in land for which the Assignment Fee was received; and
• the supply of the deposit, for which the the Deposit Fee was received. This payment was not consideration for an interest in real property but rather was an assignment of the taxpayer’s interest in the Deposit which was a “debt security” and a “financial instrument”.

The taxpayer contended that the contrary conclusion involved double taxation of the deposit, with GST payable when the Deposit Recovery was paid to the taxpayer and again when the despot was applied by the developer against the purchase price at completion.

The Revenue contended that the Assignment Agreement operated to convey a single taxable supply of an interest in real property and Deposit Recovery was a reimbursement of an expense incurred in securing the interest in land.

The Court agreed with the taxpayer that two separate supplies were made under the Assignment Agreements. The Court also found that when the Assignees purchased the deposit, they inherited the right to have the money used in the manner of a deposit, namely forfeited if they could not complete, refunded if the developer could not complete or applied against the price on completion. The deposit was therefore a “debt security” and an exempt supply.

The Court also found that the assignment of the  deposits could be considered to be an assignment of a beneficial interest in money, which was not a supply within the meaning of the Act.