Court considers GST shake-up

The rules governing the payment of GST on forfeited deposits and cancellation fees could be set to change depending on the outcome of a case heard by the High Court of Australia yesterday.

According to newspaper reports, the High Court is considering whether Victorian business Reliance Carpet Company should pay GST on a forfeited $297,500 deposit it received in relation to the sale of property in 2001.

Reliance paid GST of about $30,000 on the deposit, but a win in the High Court could see the sum refunded by the Australian Taxation Office.

The question being considered by the court is whether the deposit constitutes a “supply” for the purposes of GST laws. A ruling that it is not a taxable supply could have significance for a variety of other security or penalty payments, including cancellation fees that apply to accommodation and travel bookings.

Although the tax office is the other party to the litigation, it is funding both sides of the case because of the importance of achieving clarification on the issue.

After hearing submissions from the parties yesterday, the court reserved its decision.