Presented in October 2017 at the TEN Annual Property Symposium
The Federal Court has described the GST as a “practical business tax” and being designed to operate “in a practical business context”. Unfortunately, any search of a legal database tells us that the application of the GST to transactions involving real property has been far from smooth. Over the years a number of disputes have been brought before the Courts. Some disputes involve the Commissioner and other involve the parties to the transaction.
Disputes involving the Commissioner generally involve the question of whether GST is payable. Disputes involving the parties to the transaction generally do not involve the question of whether GST is payable, but rather as to who is to bear the ultimate liability for GST. Under the GST Act, the supplier incurs the liability to pay GST but the supplier has no statutory right to pass on that GST liability to the purchaser – this needs to be done as part of the contractual relationship. How this contractual relationship is recorded is critical and many of the commercial disputes involve a contest about the terms of the contractual relationship.
Commercial disputes involving GST and real property mainly fall within the following categories:
- the construction of the terms of the contract;
- whether the terms of the contract accurately reflect the agreement between the parties; and
- whether one party acted to the prejudice of another party or in breach of an obligation owed to the another party.
A complete review of all of the decisions falling within these categories is beyond the scope of this paper. Rather, I propose to focus on a selection of recent decisions of the State and Federal Courts that serve to illustrate the issues that commonly arise and how the Courts have addressed these issues.
Disputes about the construction of GST clauses in contracts generally arise in two contexts:
- Commercial transactions involving registered entities where the purchaser will be entitled to claim full input tax credits. The supplier will seek to ensure that the contract provides for GST to be added to the purchase price. As the purchaser will be entitled to claim an input tax credit, GST will be effectively removed from the transaction. However, if the purchaser can establish that the contract does not allow the supplier to add GST to the price, the supplier will have to remit 1/11th of the price as GST and the purchaser will receive an effective reduction of the price through an entitlement to an input tax credit of 1/11th of the price. In these circumstances, the GST will be a cost to the supplier.
- Commercial transactions involving a registered supplier and an unregistered purchaser or a registered purchaser who is entitled to partial or no input tax credits – for example if a purchaser acquires a residential development for the purposes of making the input taxed supply of leasing the apartments. In these circumstances, the GST will be a cost to one of the parties. Which party is to bear that cost will be determined by the contract. It is in the supplier’s interest to gross-up the price and it is in the purchaser’s interest for the price to be inclusive of GST. It may also be in the interests of one party, or even both parties, to look to minimise the GST, for example by applying the margin scheme in Division 75 .
Five decisions are considered below. The first decision involves the question of whether the terms of a contract made the price inclusive or exclusive of GST. That is, whether the GST is to be ultimately borne by the vendor or the purchaser.
The remaining two decisions illustrate that disputes about the construction of contractual terms can involve broader recovery issues, including:
- Whether on a sale under the margin scheme the GST recovery clause extends to an increasing adjustment; and
- Whether the margin scheme was to apply to a sale of residential premises in circumstances where the purchaser would otherwise have an increasing adjustment under Division 135.
A common theme in the decisions is that the Courts have generally followed a literal construction to the terms of the contract. The position of the claimant can often be readily understood, but the question addressed by the court is whether, objectively, the words actually used in the contract successfully achieve that result.
A helpful outline of the principles to be adopted when interpreting contracts is found in William James Watson & May Marlene Watson as trustee for the WJ & MM Watson Superannuation Fund v Scott  QCA 267 at . The relevant principles can be stated as follows:
- The Court must discover the objective intention of the parties as embodied in the words used in the agreement. The parties’ subjective intentions are irrelevant.
- The meaning is to be determined by what a reasonable person would have understood the terms to mean.
- Evidence of pre-contractual negotiations is only admissible if it provides knowledge of surrounding circumstances and relates to objective facts known directly or inferentially to both parties.
- The agreement should be construed in a commercially sensible way although minds may differ as to what equates to “business commonsense”.
- In construing a commercial contract a court should know the commercial purpose of the contract – this will usually require knowledge of the background and the context of the transaction.
- The apparent purpose or object of the contract can be inferred from the express and implied terms of the contract and from any admissible evidence of surrounding circumstances.
- Evidence of surrounding circumstances is admissible to assist in the interpretation of a contract only if the language is ambiguous or susceptible of more than one interpretation – it is not admissible to contradict the language of the contract when it has a plain meaning.
- Extrinsic evidence may inform, but cannot contradict, the meaning of the contract where the terms of the agreement are unambiguous.
- In construing an agreement the Court must find the objective meaning of what the parties had agreed to, not what they meant to agree to.
The principles may be easy to state, but the decisions show that it is often a difficult task to construe the terms of a contract seeking to deal with GST. This difficulty can be exacerbated by the use of terms that have a defined meaning in the GST Act. An example is the unfortunate case of Booth v Cityrose Trading Pty Ltd  VCAT 278. The case involved the purchase of real estate on the Mornington Peninsula in Victoria for the price of $2,250,000 and the issue was whether the Special Condition in the contract, on its proper construction, required the purchaser to pay an additional amount of $225,000 on account of GST. The Special Condition stated that the expressions used had the same meaning as in the GST Act and was as follows:
7.2 The consideration payable for any taxable supply made under this contract represents the value of the taxable supply for which payment is to be made;
Where a taxable supply is made under this contract for consideration which represents its value, then the party liable to pay for the taxable supply must also pay at the same time and in the same manner as the value is otherwise the amount of any GST payable in respect of the taxable supply.
The hearing before the Tribunal took 6 days and the Tribunal ultimately found in favour of the plaintiff (the purchaser). The defendants obtained leave to appeal to the Supreme Court, which heard the matter over 2 days and allowed the appeal, remitting the matter to the Tribunal for re-hearing. Whelan J observed that the Special Condition was not an easy provision to understand. His Honour referred to the meanings given to the words “consideration” and “value” in the GST Act and observed as follows (at -):
As the special condition says expressions used are to have the meanings given in the GST Act, what then does it mean to say that consideration “represents” value? If what was intended was that for the purposes of the special condition the consideration under the contract is to be the “value” under the GST Act, that would not be consistent with the provision stating that defined expressions in the GST Act have the same meaning in the special condition. The difficulty of determining what is meant by saying that consideration represents value is exacerbated by the fact that if “consideration” has the meaning it has in the GST Act, then any amount payable under special condition 7 must also be part of the “consideration” because it would be an amount in connection with, in response to, or for the inducement of a supply.
The difficulties continue, as the clause then provides: “[w]here a taxable supply is made … for consideration which represents its value …”. If consideration represents value because of the first part of clause 7.2, it is difficult to understand why the second part is qualified in this way.
All of these difficulties arise in a context where if what was intended was that the purchaser was to pay to the vendor any GST liability the vendor had, it would not have been difficult to say so.
His Honour considered each of the constructions put forward by the parties and found that he was not able to express a final view. In doing so, his Honour observed that there was also a third possibility – that the clause was so unclear to be meaningless.
An appeal to the Court of Appeal against the orders of the Supreme Court was dismissed and the matter was heard again before the Tribunal over 2 ½ days. On re-hearing the Tribunal found the drafting of the special condition to be thoroughly unsatisfactory but concluded that it could be given a meaning – which was that GST was to be paid in addition to the price.
After four hearings over more than 11 hearing days, the vendor was successful on the contract issue. However, this was to be a hollow victory as the Tribunal found that the contract was to be rectified by the deletion of the Special Condition, giving the ultimate success to the purchaser. There is little doubt that the legal costs of the dispute greatly exceeded the amount of GST involved.
The parties entered into the standard form Law Institute of Victoria (LIV) contract of sale. The contract provides for a “tick the box” process with regards to GST. I understand that a similar approach is used in other States. The particulars of sale state that “The price includes GST (if any) unless the words “plus GST” appear in this box”. Clause 13.1 of the General Conditions provides that “The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’.”
The dispute arose because of the way the particulars of sale were completed. The price was $2,900,000 with a deposit of $290,000, but the word “GST” was included in the box dealing with GST – not the words “plus GST”. The vendor sought a declaration that the total price payable by the purchaser under the contract was “plus GST”, that is $3,190,000.
The Court observed that there was no evidence before the Court that established whether GST would be payable on the land, although the vendor clearly believed this to be the case. The sale was of a residential property but because the premises were said to be dilapidated and not fit for habitation, the vendor contended that the sale was not “residential premises” as defined in the GST Act. Whether this was in fact the case was not considered by the Court. The vendor also contended that the margin scheme was not available because the property had been purchased with full GST. On the assumption that these matters were correct, if the price was inclusive of GST the vendor would be required to remit GST out of the price of $2,900,000.
The vendor contended that the contract was to be interpreted commercially and that the presence of the letters “GST” in the box that formed part of the particulars of sale indicated that the price was “plus GST”. The vendor contended that the surrounding circumstances supported its construction, namely:
- the vendor had purchased the property with GST;
- the box for GST had “GST” written in it;
- the vendor’s registration for GST was public knowledge;
- no query was raised until after the adjustment statement was sent out; and
- the transaction was one that commonly “calls into account GST”.
The purchaser contended that the language of the contract was clear – even if GST was payable on the sale, the purchaser was not required to pay it unless the Particulars of Sale specified the price was “plus GST”. The price could only be grossed up for GST if the mechanism provided for in the contract was adopted – it was not.
The purchaser contended that the Court could not make the declaration sought by the vendor because the Court had no jurisdiction to determine a revenue matter under the GST Act and had no ability to bind the Commissioner of Taxation as to whether GST was payable on the transaction. The Court did not accept this proposition because the Court was interpreting the contract of sale – it was not making a revenue decision.
The contention of the purchaser does raise an interesting question – whether, in the absence of the Commissioner being a party, the Supreme Court of Victoria would have had jurisdiction if the declaration sought by the purchaser extended to whether GST was payable – i.e. whether the sale was a taxable supply or was an input taxed supply of “residential premises to be used predominantly for residential accommodation”. There appears to be conflicting authorities on this question. A similar declaration was made by the New South Wales Supreme Court in Toyama Pty Ltd v Landmark Building Developments Pty Ltd  NSWSC 83, although the Court (at ) observed that the decision would not bind the Commissioner. In Coles Supermarkets Pty Ltd v Westley Nominees Pty Limited  FCA 839 the Federal Court made an order that a lease contained a “review opportunity” for the purposes of the GST Transition Act. The Court rejected the contention of the defendant that the absence of the Commissioner was an impediment to the declaratory relief sought by the plaintiff. In both decisions the Court distinguished the decision of the New South Wales Supreme Court in CSR Ltd v Hornsby Shire Council  NSWSC 946, where the Court refused to grant declaratory relief to the effect that a tax invoice should be issued in circumstances where the Commissioner had issued a private ruling to the contrary effect.
Decision of the Court
The Court accepted the defendant’s construction of the contract. The Court found that words should not be added into a written instrument unless it is clear that words have been omitted and what those omitted words were. Further, the presence of the letters “GST” was capable of a number of interpretations. One was that proposed by the vendor, another was that some thought was given as to who should be liable to pay any GST payable but a decision was not reached, and a third was that the letters “GST” were erroneously inserted and were intended to be deleted but the deletion was overlooked. A fourth interpretation (not acknowledged by the Court) could be that the parties agreed that GST was payable, but that it was to be part of the purchase price.
The Court concluded that the plain meaning of the contract was that the obligation to pay GST lay with the vendor. The contract provided a clear mechanism for the parties to give effect to an agreement that the purchaser must pay GST on the purchase price – the mechanism was not employed in this instance. There was no ambiguity in the contract which justified a reference to the surrounding circumstances.
The Court observed that the plaintiff did not seek an order for rectification of the contract – and in any event, the evidence suggested that the parties did not have a common intention about their agreement concerning the liability to pay GST.
The applicant undertook the development of two parcels of land (Lots 1 and 2), which it purchased from the owners. Lot 1 was purchased for $3,300,000 plus GST and the margin scheme was applied. Lot 2 was purchased for $3,550,000 plus GST but the margin scheme was not applied. The applicant claimed input tax credits in respect of Lot 2. Under an infrastructure agreement entered into between the applicant and the council, part of the land was to be transferred to the council for use as a sports park. The land consisted partly of Lot 1 and partly of Lot 2 (the Land Contribution). The infrastructure agreement valued the Land Contribution at $7,370,402.29 (the Infrastructure Offset) and the council agreed to pay this amount to the applicant less the community purposes infrastructure contribution applicable to the subdivision, being $300,917.56. This left a balance payable of $7,003,024.41 (the Agreed Balance). The relevant GST clause stated as follows (Clause 6.1(b)(ii)): (emphasis of the Court added)
The parties agree that GST shall not apply to the Infrastructure Offset nor any amount payable for the provision of the proposed Lot 90 under the Conditions of Approval, however, if for any reason Commissioner of Taxation does not accept that the Infrastructure Offset and any amount payable for the provision of the proposed Lot 90 under the Conditions of Approval is a GST-free payment of infrastructure charges, the Council, the Applicant and the Owner agree in accordance with Division 75-5 of the GST Law, that the Margin Scheme shall apply to the provision of proposed Lot 90 under the Conditions of Approval. Despite any other term, the Council shall pay, in addition to the Agreed Balance an amount equal to the GST that the Applicant will have to pay on account of GST associated with the receipt of the Agreed Balance.
The Court observed that the effect of the introductory words of the clause was that the parties agreed that GST would not be payable in respect of the transfer of land to the council for the sports park. The clause then addressed the possibility that the Commissioner might take the view that the transfer was a taxable supply and what would happen if that occurred. The Commissioner did take the view that the transfer was a taxable supply and the dispute was about the effect of the clause. The complication arose because while the applicant was able to use the margin scheme, part of the Land Contribution was constituted by Lot 2 (for which input tax credits were claimed). The applicant therefore had an increasing adjustment under s 75-22(1) in an amount equal to the proportion of the input tax credit claimed for that part of Lot 2 – being $161,116. The applicant claimed that the council was required to pay this amount under clause 6.1(b)(ii).
The applicant submitted that the increasing adjustment was part of “GST associated with the receipt of the Agreed Balance” for the purposes of the clause. The first element to this contention was that the concept of “GST” refers to the “net amount” of a taxpayer in a tax period and that the net amount includes increasing adjustments attributable to that period. The second element was that the increasing adjustment was associated with, and flowed directly from, the supply of the Land Contribution under the margin scheme – the increasing adjustment was triggered by the transfer of the land.
The council submitted that the expression “GST” had its ordinary meaning, which did not include an amount payable by way of an increasing adjustment. Further, the adjustment was not GST that was “associated with the Agreed Balance”, the adjustment was associated with the amount paid on the purchase of the land by the applicant. The only amount associated with the receipt of the Agreed Balance was the additional GST payable on the transfer of the sports park land, which had been paid. The clause did not extend to capture an amount payable as a repayment of a deduction previously obtained. The council submitted that it would not be expected that one party to an agreement would accept responsibility for an amount payable in relation to a different transaction – a transaction between the other party and the supplier to that party. The indemnity clause related to the transfer to the council of the sports park land and nothing else.
The Court considered that the correct interpretation of the clause was best achieved by looking at the expression “GST associated with the receipt of the Agreed Balance” in the context of the clause as a whole and the agreement as a whole, rather than breaking up those words. The Court was in general agreement with the submissions of the council and found that the clause did not extend to the increasing adjustment under s 75-22(1). The Court observed as follows (at ):
The effect of s 75-22(1) is, in substance, that if land which is obtained in circumstances where an input tax credit is claimed in relation to the acquisition of the land and that land is subsequently part of the land the subject of a transaction under the margin scheme, the supplier in relation to the latter transaction is to be put in the same position as if the input tax credit on the relevant land had never been claimed. In effect, what the applicant is seeking here is to be insulated by the respondent from this aspect of the operation of the GST Act, as well as to have the respondent pay the GST levied immediately on the transaction under the margin scheme. There is nothing in the agreement itself which indicates an intention for the indemnity to extend that far.
Dealing with the second aspect of the applicant’s contention, the Court found that the amount of GST calculated in accordance with s 75-10 of the GST Act was directly referable to the amount of the Agreed Balance – being 1/11th of the Agreed Balance minus the consideration for the acquisition of the land by the applicant. The increasing adjustment under s 75-22 was not directly referable to the Agreed Balance – it was based on the input tax credit for the acquisition of that part of the land which was part of the land supplied under the margin scheme. The Court considered that the applicant’s argument would have had more force if the clause had required the council to pay the GST associated with the Land Contribution or associated with the provision of the land to the council or, simply, the GST associated with the supply of the land offset by the applicant.
Dealing with the first aspect of the applicant’s contention, the Court found that the expression “GST”, in its popular usage, means 1/11th of the consideration for a taxable supply. In the case of a supply under the margin scheme, “GST” is 1/11th of the value of the margin: s 75-10(1). Accordingly, giving the expression “GST” its ordinary or popular meaning, the clause would apply to the amount of “GST” payable as calculated in s 75-10(1) by reference to the value of the margin.
MSAUS Pty Ltd as Trustee for the Melissa Trust and Commissioner of Taxation  AATA 1408
This is yet another GST decision flowing out of the development of the Sebel Manly Beach Hotel by South Steyne Pty Ltd. The stream of litigation culminated in the High Court decision in Commissioner of Taxation v MBI Properties Pty Ltd HCA 49, where the High Court found that the purchasers of apartments in the complex who acquired the apartments as GST-free going concerns were liable to an increasing adjustment under Division 135 of the GST Act.
The issue in this case was whether the supply was a GST-free supply of a going concern. The taxpayer contended that pursuant to the terms of the contract, the sale was not a GST-fee supply of a going concern but was a taxable supply for which the parties had agreed to apply the margin scheme. The Tribunal agreed.
The decision provides an interesting insight into the construction of contracts. The heart of the issue was not whether the sale could have been a sale of a going concern, but whether the parties had actually agreed that this would be the case.
To add further complexity to the case, the Tribunal observed that the taxpayers were effectively re-agitating questions dealt with by the Full Federal Court in South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation(2009) 180 FCR 409(South Steyne Hotel) and by the Tribunal in The Hotel Apartment Purchaser and Commissioner of Taxation  AATA 567 (The Hotel Apartment Purchaser) in relation to other purchasers in the same complex – the contractual provisions in those cases were effectively identical. The taxpayers contended that the earlier decisions were not determinative of the outcome because the High Court’s decision in MBI Properties changed the game, or because these taxpayers had addressed gaps that were identified in the arguments in the earlier cases.
At a superficial level, the taxpayers appeared to face a difficult task. The contract was a “tick the box” contract. Against the statement “GST: Taxable supply”, the parties checked the ‘No’ box. They also checked the ‘yes’ box indicating the purchase was “GST-free because the sale is the supply of a going concern under section 38-325”. Further, the parties checked the ‘No’ box alongside the statement “Margin scheme will be used in making the taxable supply”.
The Commissioner contended that these matters disposed of the issue – the parties had agreed in writing that the sale was GST-free as a going concern.
The taxpayer relied on the special conditions in the Contract. Clause 47.6.3 repeated and recorded the parties’ agreement “…that the sale of the Property comprises a supply of a going concern for the purposes of section 38-325 of the GST Act”. The Tribunal observed that this clause tended to reinforce the Commissioner’s argument. However, the taxpayer contended that clause 47.6.6 changed things. That clause read as follows:
47.6.6 if page 1 of the Contract says that the supply is GST-free because the sale is the supply of the going concern but the supply of the Property under the Apartment Lease is a supply of residential premises (but not commercial residential premises), and the premises are also to be used predominantly for residential accommodation (regardless of the term of the occupation), then the sale of the Property is a taxable supply and the parties agree that the margin scheme applies or, if completion has already occurred, the margin scheme is taken to have applied. For the avoidance of doubt, the Vendor acknowledges that if the margin scheme applies to the sale of the Property, the price is inclusive of any GST.
- The applicant led evidence from both parties as to the intention of this special condition. The Tribunal observed that a problem with this evidence was that the parol evidence rule makes clear that evidence of pre-contractual negotiations should not be used to inform the interpretation of the meaning of the contract. The Tribunal set aside that evidence and focused on the interpretation of the contract as it was drafted.
The Commissioner relied on the decision of the Full Federal Court in South Steyne Hotel. In that case, the Full Court considered identical provisions in a contract involving another purchaser in the same hotel complex. Emmett and Finn JJ concluded there was an agreement (effectively a complete agreement) in writing within the meaning of s 38-325. The plurality was not persuaded clause 47.6.6 effectively qualified the other provisions of the contract. The Tribunal noted that the plurality’s reasoning was subsequently adopted by the Tribunal in The Hotel Apartment Purchaser at - per DP Frost. Nevertheless, the taxpayer contended that the Tribunal was not obliged to follow the reasoning in South Steyne Hotelin light of the High Court’s conclusion in MBI Properties. The Tribunal agreed.
The taxpayer contended that the decision of the High Court in MBI Properties provided a belated explanation of the risk that the taxpayer sought to avoid by agreeing to a clause such as clause 47.6.6. The taxpayer acknowledged that there were shortcomings in the drafting of the clause, but said that the lawyers were trying to draft a clause that anticipated the risk of events that did not take final shape until the High Court made its decision in MBI Properties. The Tribunal was satisfied that the clause achieved this purpose – the clause as drafted was tolerably clear on its face and it provided for a contingency plan that was activated if something happened that triggered a liability to pay GST. In that event, the parties agreed the margin scheme would apply. Further, the the conditional agreement in clause 47.6.6 to apply the margin scheme was an agreement made on or before the making of the supply. The fact the contingency was not activated until a later event was beside the point: the clause embodying this aspect of the agreement was in place ‘on or before the making of the supply’.
In conclusion, the Tribunal observed that the reasoning of the High Court in MBI Propertiesmade the purpose of clause 47.6.6 apparent in hindsight. For all of its awkwardness of drafting, the clause turned out to be the produce of “prescient lawyering”.
The taxpayer also sought to rely on a Deed of Rectification entered into by the parties. The Tribunal did not need to address that issue.
Sometimes the terms of a contract are clear, but one party contends that the terms do not reflect the actual bargain agreed to by the parties. A number of such cases have involved GST. In some cases the terms of the contract are to the effect that the price is exclusive of GST, but one party contends that the actual agreement is that the price includes GST. In other cases the reverse applies. In each case the onus falls on the complainant party to establish that the contract should be rectified so that its terms reflect the actual agreement made.
A helpful outline of the principles to be adopted when a party asks a Court to rectify a contract is found in the decision of the New South Wales Court of Appeal in Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2)  NSWCA 119 at -. The relevant principles can be stated as follows:
- A written document that has been executed is presumed to be the true record of the parties’ agreement – however, if there is clear evidence of a mistake in the recording of their agreement rectification is available to reform the parties’ document, but not to reform the parties’ bargain. In Johnson Matthey v AC Rochester Overseas Corp (1990) 23 NSWLR 190 McLelland J said (at 195) that the entitlement to rectification requires “clear and convincing proof of a common intention of the parties not reflected in the written document”.
- The rationale of rectification of a written document in equity is that it is unconscientious for a party to the contract to seek to apply the contract inconsistently with what that party knows to be the common intention of the parties at the time the written contract was entered into.
- The “intention” that is relevant to rectification of the contract is the subjective intention of the parties, sometimes called the actual intention – before rectification can be granted, the actual intention needs to exist in circumstances where it can be seen that there is a common intention of all those entering into the contract.
- Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. For example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying it can be legitimate to conclude that both parties intended to act in accordance with those practices and conventions.
- In contrast to the construction of a contract, which relies on objective evidence as to what the parties intended, rectification involves the subjective intention of the parties. Nevertheless, a claim for rectification is not easily satisfied given the requirement for “clear and convincing proof” of a common intention between the parties. As illustrated by the decisions discussed below, satisfying this requirement is made all the more difficult where the parties give conflicting evidence as to what was said during the course of an auction or negotiating a contract.
SSE entered into contracts of sale to sell two adjoining residential allotments, for prices of $2,880,000 and $1,920,000 – a total price of $4,800,000. The terms of the contracts were otherwise identical. In each contract the price was stated in the amounts set out above, and no words to the effect of “plus GST” were included. The parties agreed that under the terms of the contract as exchanged Toongabbie was not required to pay an additional amount for GST on completion and it would be a matter for SSE to pay GST equal to 1/11th of the prices if they completed.
Both properties were sold with a development consent, with all plans reports and other documents connected to the development consent, so that Toongabbie could construct the project on the properties. The judgement states that “[t]he fact that the residential premises were sold with the benefit of the development consent had the effect that GST was payable on the sale of the properties”. Other than this statement, there is no discussion in the judgment about whether GST was payable on the sale, and the parties (and the Court) appeared to have proceeded on the basis that it was. If GST was not in fact payable, which does appear to be arguable, the whole dispute may have been avoided.
Before settlement was due to take place, SSE took the view that the true agreement between the parties was that the GST payable on the sales was payable by Toongabbie and that by mistake the words “plus GST” had not been added to the statement of the price in each of the contracts before they were exchanged. SSE filed a summons claiming rectification of the contracts to add those words to the contracts and specific performance of the contracts as rectified.
The Court undertook a detailed review of the evidence and concluded that the parties did not make a common mistake in the recording of the agreement. The purchaser entered into the contracts with a definite and clear understanding that the prices were to be inclusive of GST, whatever the subjective understanding of the vendor may have been. The principals of the purchaser were not aware, when the contracts were exchanged, that the contracts did not reflect the vendor’s understanding of the prices to be paid – so this was not a case where the vendor entered into the contracts under a unilateral mistake that was known to the purchaser.
The decision illustrates the importance of the evidence in determining an application for rectification. The decision also shows the difficulties that arise where the parties give conflicting evidence as to what was said and, in this case, conflicting instructions to their advisers. In such circumstances, a Court will often look to contemporaneous documents to discover the truth of the matter.
The evidence was that during the initial discussions between representatives of the parties Toongabbie expressed interest in buying the properties for $4 million. The initial view of the purchaser’s representative was that GST would not be payable because the property was residential. However, advice was obtained from an accountant that GST would be payable as the vendor had obtained development consent and the properties were to be sold with the benefit of that consent. An offer of $4.4 million inclusive of GST was then made with the understanding that the GST component of $400,000 would be recovered when the purchaser submitted its activity statement.
The offer was not formally accepted and a counter offer of “$5.1 plus same terms as before” was made a short time later. The affidavit evidence of the vendor’s representative who made the offer was that it was his understanding that the expression $5.1m plus” conveyed the meaning $5.1 million plus GST, and that was the meaning that he intended the words to have. The evidence of the purchaser’s representative was that when he read the expression “$5.1 plus same terms as before” he thought that the price asked was $5.1 million inclusive of GST – he thought that the “plus” in “plus same terms” referred to all of the terms that had been included in the draft contracts for sale, including that the price was inclusive of GST. His understanding was said to be reinforced by the magnitude of the increase in asking price over a short time. If the new offer was GST exclusive, the effective price had increased from $4.4 million to over $5.5 million.
After the offer was made, the purchaser’s representative prepared a number of feasibility studies for the construction of the project – this was done in the presence of one of the vendor’s representatives. The Court observed that a significant figure in the studies was the line item for “Total Cost” of $4,636,364, which was 10/11th of $5.1 million. The Court observed that as Toongabbie would expect to recover the GST component of the purchase price, if the purchase price was $5.1 million, and $4,636,365 represented the net purchase price that would have to be funded by Toongabbie.
At a subsequent meeting, further offers were made. The evidence of the purchaser’s representative was that a price of $4.75 million “all up” was stated to be their limit and that the vendor’s representatives said “The lowest I can go is $4.8 million. That’s it, final price”. The evidence was that he left the meeting believing that a price of $4.8 inclusive of GST was the offer on the table, and that he specifically recalled using the term “all up” during the conversation. The evidence of the vendor’s representative was that he expressly stated that the price was that “The absolute lowest I could do would be $4,800,000 plus GST”. His evidence was therefore that the price was $4.8 million plus GST. The Court found that the evidence given in cross examination by the vendor’s representative was significant. He did not insist that he said the price was “$4.8 million plus GST”, his evidence was equivocal and he may have said “$4.8 million plus”, his position being that it was standard parlance in the building industry for people to say “$X plus”, in a shorthand way, when they in fact meant $X plus GST”.
The purchaser’s representative gave evidence that he called the vendor’s representative and said they would accept “$4.8 million inclusive of GST”. The purchaser’s representative then instructed his conveyancer to change the prices to $4,800,000 with all other terms unchanged and the prices were to be $2,880,000 and $1,920,000. The conveyancer sent an email to the vendor’s conveyancer which stated as follows:
I have been instructed that the parties have renegotiated the purchase price as follows:
- 5 Octavia Street: $2,880,000
- 7a Octavia Street: $1,920,000
Please confirm that the above accords with your client’s instructions to you.
About 20 minutes later, the vendor’s conveyancer responded by confirming the prices. The Court found that this response unequivocally confirmed the instruction given by the purchaser’s representative to the purchaser’s conveyancer that the prices were to be inclusive of GST.
The email of the vendor’s conveyancer to the purchaser’s conveyancer was copied to the vendor’s representative (along with the initial email from the purchaser’s conveyancer). Six minutes later, the vendor’s representative responded to its conveyancer (but not also to the purchaser’s conveyancer) in the following terms:
yes make sure its plus gst and deposit released….
The Court found that this was an instruction to the vendor’s conveyancer to ensure that the contracts stated that the prices were “plus GST”. Unfortunately, this instruction did not appear to be followed. Two days later, the vendor’s conveyancer informed the purchaser’s conveyancer that she had received instructions that the prices were agreed to and requested contracts of sale be signed and forwarded for exchange ASAP. The vendor’s conveyancer failed to require that the prices be expressed as “plus GST”. The contracts of sale were the signed and exchanged and the expression “plus GST” was not included.
The vendor’s conveyancer gave evidence that she allowed the contracts of sale to be prepared in this way, when she understood her instructions to be that the parties had agreed that GST would be payable in addition to the agreed prices, was that by not marking the margin scheme as a “YES” on the front page, the price would be on a plus GST basis. She did not think that there was any need expressly to state that the price was “plus GST”. The Court observed that no explanation was offered as to why she had this particular understanding – and in any event, it was plainly erroneous. In cross-examination, she admitted that she had made a mistake.
After considering the evidence, the Court made the following findings:
- At the time of the exchange of contracts, it was the subjective understanding and intention of Toongabbie that the price was a total of $4.8 million inclusive of GST.
- On the objective evidence, the position taken by SSE, as conveyed to the purchaser’s conveyancer on SSE’s behalf by its conveyancer, was that the total price was on a GST inclusive basis. Accordingly, the understanding and intention of Toongabbie was not the result of any mistake made by its principals, but was an objectively sound understanding and intention founded upon the information provided by SSE.
- It is not necessary to attempt a definitive finding as to what the subjective understanding and intention of SSE was at the time the contracts were exchanged.
- The parties therefore did not make a common mistake in recording their agreement. Toongabbie entered into the contracts with a definite and clear understanding that the prices were to be inclusive of GST – whatever the subjective understanding of SSE may have been. Further, Toongabbie was objectively justified in having the understanding that it did.
SAMM entered into a contract to purchase an industrial property from Shaye Properties as the result of an auction. The directors of SAMM did not attend the auction but sent a real estate agent to bid on their behalf while they remained on the telephone to him. The bid of $3.325 million was accepted by the auctioneer.
It was common ground at trial that the effect of the contract was to provide for a price inclusive of GST. The contract of sale disclosed that the sale was a taxable supply but there was no provision in the contract whereby the price was to be increased on account of GST. After the bid was accepted, the details of the purchaser, the price and the deposit were included in the contract of sale (no amount was inserted for GST), and the contracts were executed and exchanged.
Prior to completion, a dispute arose as to whether the price was inclusive or exclusive of GST. Proceedings were issued whereby SAMM sought a declaration that, on its proper construction, the price included GST. Shaye Properties brought a cross-claim seeking a declaration that the parties’ common intention at the time of executing the contract was that the price was plus GST and that the contract should be rectified.
The critical issue in this case was what was said by the auctioneer during the auction (ie, whether GST was to be added to the price) and whether those words were heard by the purchaser. A similar issue arose in Tam v Mannall  NSWSC 250 where the auctioneer gave evidence that he informed the bidders that the price was to be increased for GST but, given the disparity in the oral evidence given at trial about what was actually said at the auction, the Court found that the vendor could not establish that the purchasers had heard those words and the parties held a common intention that the price was to be plus GST.
Eight witnesses gave evidence about what was said at the auction. The primary judge acknowledged the “striking difference” between the recollections of the witnesses called by the parties and considered that their evidence could not be reconciled.
The primary judge found that all witnesses clearly heard what was said by the auctioneer during the auction. Accordingly, if the auctioneer did say that bids were to be exclusive of GST, the purchaser would have heard it.
In resolving the evidentiary conflict, the primary judge accepted the evidence of the auctioneer as to what he said during the auction – that bids were to be exclusive of GST. In coming to this view, the primary judge found an email sent by the auctioneer to both parties shortly after the auction to be decisive. In the email the auctioneer confirmed his recollection of events and that he mentioned during the auction that the sale was a taxable supply and the bids were exclusive of GST. The primary judge described this email as an almost contemporaneous note of what was said at the auction. The email was prepared in response to an open question from the vendor that he provide his recollection of events at the auction and the evidence of the auctioneer was consistent with a “Reserve Price Letter” given by the vendor to him before the auction stating that the reserve price was “$3,500,000 + GST”. The primary judge also noted that counsel for SAMM did not ask the auctioneer any questions about the email.
The primary judge concluded that the common intention of the parties was that the sale price was $3.325 million plus GST and ordered rectification of the contract. The primary judge also found that SAMM was liable to pay interest on the purchase price.
On appeal, SAMM attacked the finding of the primary judge on the weight to be given to the auctioneer’s email, contending that it was created after the event, was clearly self-serving, and ought to have been given little, or no, weight. Further, because of the differing version of what was said at the auction, the evidence of the auctioneer was unreliable and could not be accepted.
SAMM also contended that the primary judge did not correctly apply the principles of rectification. Such a power should be used with “extreme care and caution” and requires evidence of the “clearest and most satisfactory description”. The claim must be proved so as to “leave no fair and reasonable doubt upon the mind that the deed does not embody the final intention of the parties”. SAMM contended that the evidence did not satisfy this evidentiary threshold.
Shaye Properties submitted that the failure of SAMM to challenge the auctioneer about his email during cross-examination was fatal to their submission. As a matter of fairness, the contention that the email was an attempt by the auctioneer “to reconstruct things…to save his own skin” should have been put to the auctioneer in cross examination. It was not. Further, the findings of the primary judge about what the auctioneer had said during the auction, and all parties having heard those words, were open on the evidence and SAMM had not demonstrated an appellable error by the primary judge.
The Court of Appeal dismissed the appeal.
McColl JA (Gleeson JA and Sackville AJA agreed) rejected the submission by SAMM that the primary judge had failed to apply the principles of rectification. Rather, it was apparent that the primary judge had ascertained the parties’ actual intentions, viewed objectively from their words or actions, and concluded they were correspondingly held by each party.
His Honour noted the limited scope for an appellate court to review an order for rectification – being one that is based on a mixed finding of fact and law. For SAMM to succeed on appeal, it must establish that “incontrovertible facts or uncontested testimony…demonstrate that the trial judge’s conclusions are erroneous”, “glaringly improbable” or “contrary to compelling inferences”. Further, SAMM had to deal with the disadvantage that the appellate court has when compared to the trial judge in respect of the evaluation of witnesses’ credibility and of the “feeling” of a case – which an appellate court, reading the transcript, cannot always fully share.
McColl JA observed that the primary judge had recognised the difficulty of reconciling the stark contrasting evidence of the witnesses on the critical point and that the primary judge had regard to all available evidence in determining whose account should be accepted. His Honour made the following findings:
- The primary judge was entitled to make the statement that the email from the auctioneer was “decisive”.
- The primary judge was entitled to place a high weight on the email in circumstances where the there had been no cross-examination of the auctioneer on the email.
- The contents of the email were consistent with the other evidence that the primary judge accepted, and was not inherently incredible.
- Once the primary judge accepted the evidence of the auctioneer, the conclusion that the purchaser’s representatives must have heard what was said was inevitable because each could hear what was said.
- Once it was accepted that the purchaser’s agent heard the auctioneers statement about GST, it was inevitable that the primary judge would conclude that the agent bid on that basis and contracted on SAMM’s behalf on that basis – once the primary judge reached this conclusion, the primary judge was entitled to be satisfied that the evidence was “of such a preponderance” as to satisfy his mind that the contract was mistaken in its treatment of GST and that the treatment did not reflect the common intention of the parties held when the contract was executed.
GST is payable by the supplier, who is generally also the owner of the subject of the supply. However, there are circumstances where the entity liable to pay GST is not the legal owner of the subject of the supply. Two examples are the provisions dealing with debt recovery (Division 105 – Supplies in satisfaction of debts) and insolvency (Division 58 – Representatives of incapacitated entities).
Divisions 105 and Division 58 shift the liability for GST to the entity that is selling the property of another entity – for example, a mortgagee in possession selling the property of the mortgagor or a liquidator selling the property of a company in liquidation. As GST will be a cost to the selling entity, the GST will reduce any net amount of recovery and reduce any amount that may be ultimately available for distribution. This personal liability needs to be managed in a context where there is an obligation on the selling entity to act in the best interests of the other entity (and others, such as secondary security holders) and to maximise the amount recovered under a sale transaction.
The two decisions discussed below involve the sale of real property by a mortgagee in possession. In each case the complaint was that mortgagee acted contrary to the interests of others by allowing GST to dilute the sale proceeds.
Perpetual was the first mortgagee over home unit properties in a large real estate development carried out by Sterling Estates Development Corporation Pty (which was in liquidation). Naxatu was the second mortgagee over six homes in the development. Naxatu was entitled to receive any proceeds of the sale of those units over and above the proceeds required to discharge the first mortgage.
Naxatu sued Perpetual, seeking an inquiry under s 423 of the Corporations Act 2001 in respect of its conduct as first mortgagee. The complaints included that Perpetual paid GST to the ATO in respect of the sale proceeds of home units when it was not obliged to do so and Perpetual should have applied the margin scheme to those sales. The agreed statement of issues filed by the parties described the issue in the following terms:
Whether Perpetual breached its obligation of good faith in relation to its treatment of GST and the Margin Scheme, in relation to its levying of administration fees, early discharge fees and other imposts and in relation to its treatment of sale proceeds from the sale of home units covered by its first mortgage.
Sterling paid $30.6 million to the New South Wales Government for the site. The site was to be developed in stages and involved the construction of a number of dwellings, car parks and commercial space. Sterling subsequently went into receivership, which triggered a default under the mortgages and Perpetual’s ability to exercise its power of sale. Naxatu wrote to Perpetual asking for information in relation to the amount required in order to discharge its mortgages and putting Perpetual on notice that once it had received that amount, Naxatu would require Perpetual to discharge those mortgages.
Perpetual’s solicitors informed Naxatu that contracts had been exchanged over 10 properties as mortgagee exercising its power of sale and that Perpetual anticipated that upon settlement of those sales, it would realise sufficient funds to discharge its debt against these and other properties owned by Sterling. However, it was stated that no representation was made in this regard as it was subject to verification of various costs and fees, including inter alia
The solicitors for Perpetual subsequently informed Naxatu that Perpetual had received a private ruling from the ATO in relation to its liability for GST on the sale of the properties and that the private ruling did not give Perpetual the comfort it required in order to apply the margin scheme in an attempt to minimise the GST liability for the benefit of the second mortgagees. In those circumstances, Perpetual intended to pay the full amount of GST on the sales without applying the margin scheme.
Naxatu replied and the letter included the following:
You assert that to date your client has attempted to minimise its GST liability for the benefit of the second mortgagees however, the private ruling (“the Ruling”) obtained by your client from the ATO does not give it “the comfort it requires”. With respect the applicability of the margin scheme in these circumstances is not a question of whether your client receives “the comfort it required” from some private Ruling. If the provisions of Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (Commonwealth) (“GST Act”) enable the margin scheme provisions to be applied for calculating the liability to the Mortgagee under s 105.5 of the GST Act to pay the GST the debtor would have owed on that sale, then clearly the mortgagee is sacrificing the interests of subsequent owners by failing to adopt that method.
Perpetual sold the properties without applying the margin scheme and remitted GST in full.
The manager who had carriage of the matters gave the following evidence as to the way in which Perpetual went about dealing with the problem of GST and the Application:
- From the start he was aware that Perpetual, as mortgagee in possession, might have been entitled to apply the margin scheme if Sterling had been entitled to do so – he turned his mind to the question and took action in relation to it.
- The matter was complicated by the fact that not all of the companies within the group were under the control of Perpetual’s receivers and in the hands of different controllers – for this reason, accurate information would be difficult to gather.
- He formed the view that the prudent course for him was to follow was to seek a private ruling from the ATO as to whether Perpetual could and should apply the Margin Scheme. Perpetual’s solicitors applied for such a ruling. He also instructed the solicitors to obtain information as to what Sterling had done in the past in respect of the Margin Scheme.
- The ATO informed the solicitors that Perpetual could apply the Margin Scheme in the way outlined in the application provided that it produced a fair and reasonable result. The ATO also stated that if this method was different from what Sterling had done, Perpetual would need to apply the changed method to the earlier sales made by Sterling and make any necessary adjustment.
- In his opinion, to proceed to apply the Margin Scheme was too great a risk for Perpetual given that it did not know whether, and if so, in what way, Sterling had previously approached the problem.
The Court observed that the manager was cross-examined about the decision he ultimately took concerning GST and the Margin Scheme and that he was criticised for not personally trying to locate the former directors of Sterling to obtain their recollections as to its practices before it lost control of the development. Naxatu called a former director and CEO of Sterling, who said that Sterling had applied the Margin Scheme in respect of its earlier sales and did so by including the costs of construction.
The Court concluded that the decision of the manager not to apply the Margin Scheme was not demonstrated to have been wrong, let alone reckless, imprudent, negligent or made in bad faith. Rather, the Court took the following view of the actions of the manager:
Mr Stone gave me the impression that he was a cautious man who did not wish to take unnecessary risks when it came to the question of the payment of GST and the Margin Scheme. He sought advice. He asked for enquiries to be made. In the end, he did not receive the level of comfort which he required.
The decision reflects the difficult position of Perpetual, as mortgagee in possession. It was faced with personal liability for the GST in respect of the sale of the properties – if it got the GST wrong, it had to pay. In such circumstances, one can expect a high level of conservatism on the issue of GST. Nevertheless, in circumstances where the Full Federal Court had already heard proceedings relating to the application of the margin scheme to the sale of the lots in the development, it could be said that Naxatu was harshly done by.
In 2007 two companies entered into an initial loan with the bank for $600,000. The loan was secured by mortgages over two properties owned by the companies and over a property owned by the two defendants (the Bass Hill property) who, with another company, were to be guarantors of the loan. On the same day, the companies entered into a further loan agreement for $482,000. The loan was secured by the three properties.
In 2008 the companies entered into a further loan with the bank for $600,000 to construct four townhouses. The same security was provided and the same guarantors, including the two defendants, were to guarantee it.
By February or March 2010, the companies encountered financial difficulties and they entered into contracts to sell the four townhouses. The companies defaulted on the loans and the bank entered into possession as mortgagee (the companies subsequently went into liquidation). The bank, as mortgagee in possession, contracted to sell one of the townhouses (the earlier contract entered into by the contract had been rescinded), and all four contracts settled in the same tax period. The 2007 loans were paid in full but there was a shortfall on the 2008 loan of $71,177.31. The bank paid GST of $116,644, being 1/11th of the total sale price of the four sales. This increased the shortfall on the loan to $192,131.11. Three of the contracts of sale contained GST gross-up clauses. These clauses were not enforced by the bank.
The bank, as mortgagee, sought possession of the Bass Hill property held by the defendants. An order for possession was made and the properties were sold. The sale price cleared the debts owed by the bank. The second defendant brought a claim against the bank in relation to the monies received and retained by the bank from the sale of the properties (the first defendant was bankrupt and took no part in the proceedings).
The second defendant’s claim concerned the failure of the bank to enforce the GST gross-up clause that was present in three of the contracts. The second defendant claimed that the effect of the clauses was that, to the extent that GST was payable on the sales of the units, the bank as mortgagee in possession was entitled to demand a gross up for GST from the respective purchasers. The bank did not avail itself of that right, despite an entitlement to do so, and had sacrificed the interests of the mortgagors and the guarantors by failing to obtain the best price reasonably obtainable for those three townhouses.
The second defendant’s alternative claim was that the bank had failed to avail itself of the GST margin scheme on the sale of the town houses. While the margin scheme required the agreement of the purchaser, it was contended that having regard to the inclusion of the GST gross-up clauses, there was every reason why a purchaser would have agreed to the application of the margin scheme if asked because of the economic incentive to do so.
The second defendant relied on the general equitable duty of a mortgagee to act conscionably towards the mortgagor and persons under the mortgagor and submitted that the duty would be breached where there was a failure to take an obvious step or precaution. The second defendant also relied on s 420A of the Corporations Act 2001.
The bank submitted that the second defendant had no standing to raise the matter. This was because the bank had not called on the guarantee in relation to the loan and at the outset of the hearing the bank undertook not enforce any amounts against the second defendant under the guarantees. Therefore, the only persons who had standing to complain were the companies themselves, and because they were in liquidation, the liquidator.
The Bank also made the following submissions:
- The Bank was not in a position to pursue the purchasers for GST, because the contracts were entered into by the companies as vendor. However, in final submissions the bank accepted that it had the right to pursue the matter relying on the Power of Attorney clause in the mortgage.
- The margin scheme could not be employed without there being a re-negotiation of the contracts.
- The bank initially submitted that if it had attempted to enforce the GST clauses at settlement the purchasers may have rescinded the contracts, which they had a right to do because the plan of subdivision was not registered within the stipulated period. The bank subsequently accepted that the right to rescind was lost on registration of the plan.
- The bank submitted that it was under no obligation to make demand on or sue the purchasers for GST, particularly after settlement.
- The second defendant had not suffered any loss because other secured creditors ranked ahead of him on the sale of the Bass Hill property and the second defendant would not receive any proceeds of the sale.
The Court rejected the claims of the second defendant.
The Court observed that the officer at the bank was aware of the Power of Attorney clause in the mortgage documents and understood that if he called on the purchasers to pay the GST they would be obliged to do so. However, his evidence was that he did not consider enforcing the clauses.
The Court observed that the bank’s submission was ultimately that it was not certain that the purchasers could have been held to the GST gross up clauses “having regard to other available legal defences that could be argued by them in relation to the GST issue” either in answer to an action for specific performance if brought before settlement or in an action to enforce the clauses after settlement – the Court noted that “quite what those legal defences might be was not specified”.
While the Court did appear to have concerns about the conduct of the bank in failing to enforce the GST recovery clauses, the fatal issue for the second defendant was his lack of standing. The Court found that it was difficult to see how the bank was under any duty to the second defendant to enforce those clauses nor how any failure on the bank’s part to do so provided any relief to him. A duty was owed to the mortgagor, but the second defendant was not the mortgagor. He was a guarantor, but the guarantee had not been called upon and the bank undertook not to do so. Finally, any residual benefit that may have flowed to him as owner of the property sold was negated by the existence of other securities which ensured that no part of the proceeds would flow to him.
6 October 2017
 Sterling Guardian Pty Limited v Commissioner of Taxation  FCA 1166 at  per Stone J.
 ATS Pacific Pty Ltd v Commissioner of Taxation  FCAFC 33 at  per Pagone J.
 The A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”). Unless stated otherwise, all statutory references in this paper are to the GST Act.
 A discussion of some of the earlier authorities relating to the first two categories in the context of contracts of the sale of real estate is to be found in my paper titled “GST and Real Estate Contracts – when things go wrong” which is available on my website at chrissievers.com.
 Save for financing issues for the purchaser through being required to finance the GST component pending lodgment of an activity statement at the end of the tax period and also higher stamp duty on property transactions because of the increased purchase price.
 Cityrose Trading Pty Ltd v Booth & Anor  VSC 495.
 This is consistent with the view of the Commissioner in GSR 2012/5 Goods and services tax: residential premises” at .
 In the Decision Impact Statement published by the Commissioner in respect of the decision in Toyama the Commissioner stated that he would continue to administer the law in accordance which his public ruling (GSTR 2000/20) and would provide test case funding for a Federal Court case that was likely to provide judicial guidance on the issue. That case was Sunchen Pty Ltd v Commissioner of Taxation  FCAFC 138.
 The Commissioner successfully applied for leave to be joined as a party to the appeal: Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd  FCAFC 115.
 Appeal Note: A & A Property Developments filed an appeal to the Victorian Court of Appeal. The appeal was heard on 22 August 2017 and as at the date of publication of this paper the decision remains reserved.
 In ATO ID 2004/303 the Commissioner concludes that the sale of residential premises together with a development consent is an input taxed supply of residential premises which includes the development consent. This conclusion is consistent with the view of the Full Federal Court that the issue is to be resolved by reference to the physical characteristics of the property at the time of supply: Sunchen Pty Ltd v Federal Commissioner of Taxation  FCAFC 138.
 It appears that the parties may have informally agreed, but contracts were not exchanged.
 Referring to the observations of Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603;  NSWCA 407 at 430.
 The Court observed that these costs were later excised from the calculations by the decision of the Federal Court in Sterling Guardian Pty Limited v Commissioner of Taxation  FCAFC 12.
 Referring to Hawkesbury Valley Developments Pty Ltd v Custom Credit Corp Ltd (1994) 8 BPR 15,581.
 Referring to Upton v Perpetual Trustees  FCAFC 57; (2007) 158 FCR 118 at [86(g)(i)].
 Section 420A provides that in exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value – not less than market value; or (b) otherwise – the best price that is reasonably obtainable, having regard to the circumstances when the property is sold.