Send us an email.

  • This field is for validation purposes and should be left unchanged.

GST Class Action: Before You Lynch Your Developer, Read This

Risks of legal costs in insolvent proceedings

The suggestion that large sums of money have been pocketed by industry under the guise of collecting GST serves to fuel the public’s ongoing suspicion of property developers; however this may not be the case.

Despite the broad description of the class action by its promoters, their press statements indicate that the GST has been incorrectly accounted for only in a very specific set of circumstances.

Due to the Gloxinia case in the Federal Court in 2010 and legislative changes made to the GST Act in 2011, there are very few scenarios in which GST would not apply. It’s these narrow circumstances in which a purchaser can arguably make a claim against a developer for GST that they paid on the purchase of their unit.

Vik Sundar, tax specialist and Director at Chamberlains Law Firm, notes that the conditions that give rise to eligibility for a GST refund are complex and projects must be assessed on a case-by-case basis.

“There are developers who did not know or did not receive correct advice as to their eligibility for a refund, or made an error in deciding not to apply for a refund,” says Mr Sundar.

“These developers remitted GST moneys to the ATO in the normal course of business, and have not made any windfall gain.

With GST moneys remitted to the ATO by many developers, some are questioning what the class action could possibly be about. Mr Sundar says that, “there are also potentially some developers who collected GST from purchasers and after obtaining advice that GST would not apply, decided to pocket those monies.”

Each development raises separate issues which need to be considered. Mr Sundar suggests that developers should have the opportunity to be proactive in rectifying any errors and returning GST moneys to apartment purchasers before the costs and risks of extensive litigation burdens industry and consumers alike.

“A collaborative approach between industry and purchasers would see the administrative cost of the refund shared between the parties, and see purchasers obtain a great deal more of their refund, and more quickly, than if they joined the class action,” Mr Sundar said.

“Although there has been no wrongdoing on their part, some developers are exploring the opportunity to apply for refunds from the ATO and return GST amounts to consumers directly.”

Prior to joining the class action, owners of residential apartments purchased off-the-plan should consider contacting the developer directly, and exhausting all avenues of obtaining a refund on a conciliatory basis prior to joining the class action.

For more information about GST matters please contact Vik Sundar at vik.sundar@chamberlains.com.au.

by