Taxman wins forfeited deposits case
Friday, May 23, 2008/
Business owners remain in the dark about the GST treatment of many forfeited deposits, despite the High Court of Australia ruling on the matter yesterday.
Victorian business Reliance Carpet Company brought a case arguing it was not legally required to pay GST on a forfeited deposit it received as part of a failed land deal.
The High Court rejected that argument, finding it was indeed required to pay the GST. According to Deloitte partner Andrew Nutman, however, the decision only has relatively narrow application.
He says the court decision may clarify the legal position where deposits paid in relation to a taxable supply – for example, land or accommodation – but not otherwise.
That means businesses that charge deposits on non-taxable supply products – for example, the sale of a small business or an international plane ticket – can still not be certain whether GST applies.
“For businesses supplying land in differing circumstances and businesses in other industries which take deposits, particularly travel, tourism and major retail goods industries, this decision unfortunately does not provide certainty as to the correct GST treatment of forfeited deposits,” Nutman says.
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