A High Court case will decide on the Goods and Services Tax (GST) payable on a failed contract, which will have further implications on the definition of ‘supply of goods and services’.
Reliance Carpet entered into a contract with a customer, involving a deposit of 10 percent but the customer failed to pay the balance, forfeiting the deposit to the vendor. The Australian Tax Office found that GST was payable on the deposit.
Reliance objected and went to the Administrative Appeals Tribunal, which found that the failed contracts still constituted ‘supply’ and therefore they were liable to pay GST. Reliance appealed to the Federal Court, which found in favour of Reliance, stating that ‘supply’ did not take place as the contract was rescinded.
Furthermore, if GST were payable on the deposit, it would have wider implications on cancellation fees, late fees and other similar fees.
If the Tax Commissioner loses the case against Reliance Carpet, millions of businesses and consumers may be due a refund for wrongly charged GST.
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