Poor drafting prevents collection of GST

A recent case highlights the danger of a poorly drafted GST clause. The GST gross up clause in the contract for sale of land was so poorly drafted that the Court held that the clause was void for uncertainty and declared that the clause was severable from the contract.

This was a costly mistake for the vendor who, as a consequence, is unable to collect a GST gross up payment from the purchaser, and is left to fund the GST liability arising from the sale of the land out of its own pocket.


In Cityrose Trading Pty Ltd v Noel Booth and Kay & Burton Pty Ltd [2013] VSC 504, Noel Booth (Purchaser) bought a residential property from Cityrose Trading Pty Ltd (Vendor) by a contract of sale after the property had earlier been passed in at auction.

The Purchaser offered to pay the price of $2,250,000 for the property and the Vendor accepted the offer.  The purchase price recorded in the Particulars of Sale was accordingly $2,250,000.  However, the contract of sale contained a GST clause and a dispute later arose between the parties as to whether the GST clause required the Purchaser to pay an additional amount of $225,000 to the Vendor on account of GST.

Justice Emerton in the Supreme Court of Victoria identified a number of weaknesses in the GST clause.  First, the clause used terms that were defined in the GST legislation and purported to import those definitions into the contract.  However, the way in which those terms were used in the GST clause was inconsistent with their statutory definitions.  Second, parts of the clause seemed to serve no purpose and were unnecessary.  Third, and most importantly, the GST clause did not assist with the question of whether the price of $2,250,000 was inclusive or exclusive of GST.

Her Honour held that the GST clause was obscure and meaningless, and that it was not possible to discern from the clause whether the parties intended that the purchase price be GST-inclusive or GST-exclusive.  Accordingly, her Honour declared that the clause was void for uncertainty and severable from the contract.

Although unnecessary, her Honour went on to find that the Vendor had, in any case, engaged in misleading or deceptive conduct and that the Purchaser had suffered loss and damage as a result.  Accordingly, the Purchaser would have been entitled to remedies under the Fair Trading Act 1999 (Vic).  The misleading or deceptive conduct included the late provision of the draft contract of sale by the Vendor’s solicitors to the Purchaser and his solicitors, giving them little time to properly review the contract.  The Court also considered that the fact that the property was residential land which does not ordinarily attract GST meant that the Vendor should have communicated the requirement for a GST gross up payment to the Purchaser by means more than just the insertion of a GST clause into the contract.


The decision highlights the importance of clear drafting for GST in a contract.  Poor drafting increases the risk of a dispute later arising between the parties, and can result in a direct financial loss to one of the parties.

Please contact a Corrs expert for advice or assistance in relation to GST and documenting your transaction.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Rhys Jewell

Partner. Melbourne
+61 3 9672 3455


Heran Kim

Special Counsel. Sydney
+61 2 9210 6200