• Service: Tax, Indirect Tax
  • Type: Business and industry issue
  • Date: 7/06/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Keith Polkinghorne

Keith Polkinghorne
Partner, Tax

+61 7 3233 3157

Robustness of GST Clauses 

by Keith Polkinghorne, Indirect Tax Specialist

Even after nearly 13 years since the introduction of Goods and Services Tax (GST) we continue to see GST clauses in contracts that fail to adequately deal with the impact of GST (or, worse still, no GST clause at all).

When entering into contracts, both parties need to be mindful of the impact that deficient GST clauses can have on who bears the cost burden of GST or, in fact, whether GST is even payable (e.g., margin scheme and going concern sales).


Consider the simple example of a supply where the vendor incorrectly assumes the supply to be GST-free or input taxed. In the absence of a robust GST clause, the vendor will be out-of-pocket 1/11th of the consideration received, taking a severe and unnecessary hit to its margins.


Recent case law in this area also serves to highlight:


  • Courts are very reluctant to overturn the clear words of a contract, even where the result seems unfair at face value.
  • Vendors need to be careful entering into 'GST inclusive' contracts simply because they believe a supply to be non-taxable.
  • Purchasers are unlikely to obtain any relief simply because they had incorrectly assumed that a GST inclusive payment made would allow them to claim an input tax credit.


In the current price-sensitive market, clients should not underestimate the need for robust GST clauses in their agreements.


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