03 MAY 2019 | Daily Top Story: Canberra property developers accused of pocketing GST charges during apartment boom

A curved, tall apartment building in Canberra with trees in the foreground.

Some of Canberra’s biggest property developers have been accused of charging homebuyers GST when it was not required and pocketing millions of dollars in proceeds.

Key points:

  • Apartment owners in the Altitude and Governor Place complexes say developers charged them GST when it wasn’t applicable
  • If the class action is successful Canberra developers could have to back pay tens of millions of dollars
  • A recent court decision cleared the way for a third lawsuit by owners of Manhattan on the Park apartments

A major class action, launched by almost 500 apartment owners, could see each homeowner paid back tens of thousands of dollars they were allegedly charged incorrectly.

Buyers of 488 apartments in the Altitude complex in Belconnen and Governor Place in Barton have launched lawsuits in the Federal Court to recover GST paid on new units during an apartment boom several years ago.

The owners said they agreed to pay GST upon purchase, but that developers then had the tax status of the sales changed and pocketed the extra money.

A court decision to reinstate a previously deregistered company has also paved the way for a third lawsuit against the developers of the Civic apartment block Manhattan on the Park.

Altitude Apartments — comprising 352 residential units — was developed by Belconnen Lakeview, a company in the Hindmarsh Group, while the 136-unit Governor Place project was a joint venture between the Morris Property Group and Doma Group, registered as Barton Nine and 13.9 Barton.

Manhattan on the Park is a 330-unit complex developed by an Amalgamated Property Group entity.

The case

A tall apartment building with a pay parking sign in front of it.

Statements of claim from the buyers allege both Belconnen Lakeview and Barton Nine incorrectly charged GST on the sale of the apartments when it was not taxable.

The documents allege developers entered into contracts with buyers that specified GST was payable.

But, prior to settlement, the developers are accused of obtaining a private ruling from the Australian Tax Office, changing the tax status from taxable supply to input taxed.

The case alleges the developers failed to tell buyers they no longer had to pay GST, and pocketed the windfall instead.

The buyers have now brought Federal Court action to seek restitution of the GST, damages for breach of contract, and damages for violations of Australian Consumer Law and the Fair Trading Act.

However, the developers are fighting the claim, arguing the buyers agreed to pay the sale price for the units, irrespective of whether any GST was payable or not.

The defence case also said the buyers’ right to make a claim had expired.

Both matters have been listed for a hearing in May.

A modern apartment building in Canberra with a sign reading Governor Place.

The cases stem from a 2010 NSW Federal Court decision that found new units built on leasehold land were not considered new and, as a result, GST was not payable.

The decision was significant for the ACT as all land in the territory is leasehold.

Changes to GST laws in 2011 closed the loophole, but the decision coincided with an apartment boom, meaning scores of projects commenced during the window of time were affected by the court’s ruling, as buyers were potentially incorrectly charged GST on their purchase.

Prospect of more cases

The top of an apartment building, with a tree showing autumn colours.

In February Justice Michael Lee ordered the Australian Securities and Investments Commission to reinstate the registration of the deregistered company 38 Akuna Pty Ltd, which built Manhattan on the Park.

The judge also appointed new liquidators to the company, which is a subsidiary of Amalgamated Property Group.

The company’s reinstatement meant that buyers of new residential units in the development could now make a claim for the refund of GST they paid at the time of purchase.

In his decision, Justice Lee noted there was “at least some prospect” buyers “could receive some distribution in the winding-up of the company”.

“I am satisfied that there is an arguable cause of action against the company, which is available to be advanced in circumstances where the litigation is funded,” the judge said.

“Despite earlier equivocation … it now appears that the relevant material is available, which means that the litigation is likely to proceed.”

Source: https://www.abc.net.au/news/2019-04-24/canberra-property-developers-accused-of-gst-grab/11038036

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