GST clauses: Recovering GST
Onus on supplier to recover GST.
If GST is payable on the transaction, but has not been provided for in some way in the contract, the supplier may find itself liable to account for the GST without any legal right of recovery from the customer. In this respect, the risk lies on the supplier to:
- be clear on whether GST applies, in whole or in part. Particular attention should be paid to contracts which span 1 July 2000 and to whether any transitional rules apply; and
- if GST applies, ensure that either it is included in the price, or is otherwise provided for.
Some typical ways in which GST is provided for in contracts are as follows:
- the price is specifically stated to include GST;
- the price is stated to be subject to GST, which will be added and will be legally recoverable from the customer;
- the price is stated to be subject to any additional charges or taxes that may arise, with the expectation that this would include GST. It may be that this will be satisfied by certain outgoings recovery clauses (Smale v Fletcher Homes Ltd (1996) 17 NZTC 12,662). The Tax Office considers that a tax "in respect of the premises" in an outgoings recovery clause can include GST for the purposes of determining whether there is a review opportunity under the contract; or
- the contract states that the price will be reviewed as from the date that GST commences.
EXAMPLE: In September 1999 a fitness club enters into a 12-month contract with a customer. The contract is made after 8 July 1999 and is therefore not entitled to the benefit of the concessions noted. The contract will be treated as a periodic or progressive contract, so the proportion of the contract fee that relates to the period after 30 June 2000 will be subject to GST. If the fitness club has not provided in the contract for the price to include the GST or provided for it in some way, it will be liable to fund the GST itself. As it does not have any right of recovery from the customer, it may have to request the customer to contribute an additional amount to cover the GST. If this is not successful, the fitness club may have to absorb the payment.
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