NEW SOUTH WALES COURT ISSUES JUDGEMENT ON SKY PROFIT PROPERTIES DEVELOPMENT V/S DEAN STREET HOLDINGS CASE

Australia, July 28 -- New South Wales Land and Environment Court issued text of the following judgement on June 27:

1. The issue for determination is the proper construction of a contract for the sale of land between the Plaintiff ("Sky") as vendor and the Defendant ("Dean Street") as purchaser ("the Contract"). Specifically, the question is, are liquidated damages payable by Dean Street to Sky on an amount of Goods and Services Tax ("GST") paid pursuant to an obligation created by the Contract, by Dean Street to Sky some years after the completion date of the Contract?

2. The sale of the land was one part of an overall transaction between the parties which involved a suite of contracts, being the Contract, an agreement described as a development agreement which provided for Dean Street to take over the development of the land, a call option deed which gave Sky the ability to call for a number of units in the completed development, and a loan agreement by which Sky lent Dean Street $500,000 to assist Dean Street in completing the development.

3. The transaction was negotiated in a hurry because Sky was under extreme pressure from a judgment creditor who had lodged caveats on the title to the land. Ultimately, the majority of the purchase price paid on settlement went directly to that creditor to discharge the judgment debt in return for the withdrawal of those caveats.

4. Prior to the Contract being entered into, there were negotiations between the parties where the GST treatment of the sale was discussed and the question of whether the "margin scheme" provisions of Division 25 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) applies. That GST was applicable was agreed by the parties. They also agreed that the GST "margin scheme" was applicable. The consensus at the time the Contract was made was that the amount of that GST would be worked out by Sky and paid by Dean Street after completion. Neither party had the benefit of expert accounting or tax advice or a private ruling from the ATO as to how GST should properly be calculated. Once the amount had been properly calculated, it would be paid by Dean Street to Sky at that point in time.

5. In other words, the common understanding of the parties as at the date of the Contract was that, whilst there would be an amount of money payable by Dean Street to Sky, being the amount of GST referable to the transaction, that amount would not be paid on settlement, but rather would be paid at some later unidentified point in time.

6. This case does not concern whether GST was payable on the transaction or if the margin scheme applies. It is common ground that it was. The amount has been paid by Sky to the Deputy Commissioner of Taxation and an amount equal to that amount of tax has been paid by Dean Street to Sky. Indeed, for a period of time, there was an overpayment because the amount claimed by Sky originally exceeded the amount of its actual tax liability.

*Rest of the document can be viewed at: (https://www.caselaw.nsw.gov.au/decision/19766739459fc2c4dba1aa88)

Disclaimer: Curated by HT Syndication.