Analysis
43 The principal question is an exercise in statutory construction. Resolution of that question must begin in the text of the statutes: Spencer v The Commonwealth (2010) 241 CLR 118 at [50] and the authorities there cited.
44 First, the question whether GST is payable in respect of a supply requires reference to the "GST Law" as a whole. As noted earlier (see [33] above), that includes both the GST Act and the GST Transition Act. It is the combined effect of those Acts (among others) which determines liability to pay GST. The express words of ss 4, 6(1), 7 and 10 of the GST Transition Act are consistent with that construction. By way of example, s 10 of the GST Transition Act provides:
If, before 1 July 2000:
(a) any consideration is received in connection with a supply, or provided in connection with an acquisition, that you will make on or after that day; or
(b) an invoice is issued relating to a supply or acquisition that you will make on or after that day;
for the purposes of determining the tax period to which the GST or input tax credits are attributable, the consideration is taken to have been received or provided, or invoice taken to have been issued, during your first tax period after that day.
…
The concepts of "supply", "acquisition", "consideration", "tax period" and the like are all concepts defined in the GST Act and apply to the GST Transition Act: s 5(2) of the GST Transition Act.
45 As noted earlier, s 7(1) of the GST Transition Act limits the scope of the GST Act to supplies which occurred on or after 1 July 2000. As to whether a supply falls within s 7(1), one must consider s 6 of the GST Transition Act, which sets out how to determine when a supply is made for the purposes of s 7(1): see also the Explanatory Memorandum to the GST Transition Act which relevantly states at [2.7] that s 6 will "provide the basis for a general rule to determine whether supplies that span implementation will fall under the GST system".
46 For those reasons, I accept the respondent's contention that determination of the time of supply is not to be considered separately under s 9-5 of the GST Act and s 6(3) of the GST Transition Act: see [42] above. The temporal limitation in s 7(1) of the GST Transition Act is essentially a threshold question - did the supply occur on or after 1 July 2000? If yes, then the GST Act applies and one must consider whether a "supply" was made for the purposes of s 9-5 of the GST Act. If no, then the GST Act, specifically s 9-5, has no application. As to when a supply occurred for the purposes of s 7(1), that is to be determined in accordance with s 6 of the GST Transition Act.
47 Before turning to consider s 6 of the GST Transition Act, a number of matters should be noted.
48 First, in respect of a sale of real property, there may be more than one event which gives rise to a "supply" within the meaning of s 9-10 of the GST Act. However, both parties agree that there can only be one "taxable" supply for the purposes of s 9-5 of the GST Act. As the High Court stated in Federal Commissioner of Taxation of the Commonwealth of Australia v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 at [5]:
The composite expression "a taxable supply" is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of "supply", but upon examination it many appear that there is no more than one "taxable supply".
49 Thus, the ultimate issue is whether the taxable supply was made before or after 1 July 2000. The applicants submitted the supply took place upon entry into the Metro or Capri Contracts, and that settlement was merely ancillary or a step in "perfecting" the rights and obligations that arose upon entry into the contracts of sale. According to the applicants it was that supply (the entry into the contracts) which would underpin the finding of a taxable supply for the purposes of s 9-5(a) of the GST Act and because it was made by Southpark before 1 July 2000, s 9-5(a) of the GST Act is not satisfied. The respondent submitted that a supply took place upon settlement of those contracts, and that any earlier acquisition of rights that might otherwise constitute a supply in its own right was merely ancillary to the real and substantive provision of that which was contracted for at settlement. It is apparent that both events would satisfy the s 9-10 definition of "supply": see [30] above, in particular subs (2)(d) and (2)(e).
50 Secondly, if the Metro and Capri Contracts had been entered into after 1 July 2000, then by reason of s 99-5(1)(b) of the GST Act, the deposit held as security for completion of the contract would not have been "treated as *consideration for [that] supply, unless the deposit [was] applied as all or part of the consideration for a supply". In other words, s 99-5 would have attributed the GST to the later tax period. In essence, s 99-5 takes the deposit out of the definition of "consideration" until a later point when the deposit is forfeited or applied as all or part of the consideration for a supply (for example, settlement): see also s 99-10 at [36] above. Thus, it attributes the "taxable" supply to settlement, because at that time there is a supply for consideration for the purposes of s 9-5 of the GST Act. Here, there is a complicating factor - the deposit was paid prior to 1 July 2000, meaning s 99-5 does not apply to the deposit.
51 Thirdly, as the previous case law on the GST Act makes clear, each case must be determined on its own facts: see for example, Reliance Carpet at [5]. It is difficult, and I suggest dangerous, to seek to espouse some general rule on the way in which transactions which straddle 1 July 2000 are to be dealt with. So, for example, I do not accept the respondent's submission that the expression "made available" means placing something at the disposal of another, and that where there is a sale of real property, the real property is "made available" at settlement rather than at the time of contract. There may well be circumstances in which that proposition does not hold true.
52 Fourthly, transactions in the form of the Metro and Capri Contracts fall for determination under subs (3) of s 6 of the GST Transition Act, as they satisfy the broad definition of "real property" in s 195-1 of the GST Act: see [31] above. In relation to "real property", s 6(3) provides that a supply of real property is made when the property is "made available" to the recipient: see [39] above.
53 The term "made available" is not defined in the GST Transition Act. There is no direct authority on what constitutes real property being "made available" in the context of the GST Transition Act. It is common ground that the phrase should be given its ordinary meaning, although the parties did not agree on its ordinary meaning or the time at which the relevant supply was in fact made. Resort to dictionary definitions of the word "available" or cases which have considered the phrase in an entirely different statutory context are of limited, if any, assistance. As the applicants submitted, the Court should adopt a statutory construction of the GST Act which "gives it a practical and fair business operation" and one which accords with "social and economic reality": Brady King at [24] and [30].
54 Considering s 6(3) in the context of s 6 of the GST Transition Act as a whole, it is clear that, for the purposes of determining the time of supply under the GST Transition Act, the time of substantive performance, being the time at which the recipient obtains that which was bargained for, is the time of supply. Under s 6(4), a supply of services is made when the services are "performed" as opposed to when the contract for the future performance of services is signed. Under s 6(5), a supply of "any other thing" is made when the thing is "performed or done" as opposed to when the contract for the future acquisition of the thing is executed. The phrase "made available" should be construed in a manner that is consistent with the statutory scheme by which performance or tangible provision of that which was bargained for is the time of supply.
55 The task in the present case is to analyse the Metro and Capri Contracts and determine when the real property was "made available" to the purchasers: see [24] above for a summary of some of the important terms of the Metro Contract (the Capri Contract contained equivalent terms). In addition to those terms, the applicants pointed to other features of the Metro Contract (which are equally applicable to the Capri Contract) to support their contention that the supply was at the time of contract:
1. the Metro Contract was a binding contract giving rise to enforceable rights and obligations;
2. the Metro Contract was executory and if the sale did not complete because of one of the conditions precedent or subsequent, the rights and obligations created on contract were not rescinded ab initio;
3. a number of the clauses (for example, cll 2.1, 2.2, Particulars of Sale, "Settlement Date" and "Price") were standard terms in all real estate contracts whether "off the plan" contracts or contracts for lots on existing plans of subdivision;
4. the definition of "Property" in the Special Conditions (see [24.2] above) was simply descriptive of what has been sold under the contract recognising that the real property sold under the contract formed part of an existing and larger piece of property;
5. Southpark was unable to sell the real property to any other party; and
6. the purchaser was the sole beneficiary of any increase in value of the property.
56 The applicants also relied upon two other aspects of the contracts - (1) that the purchaser had a caveatable interest and an insurable interest; and (2) that Special Condition 17 gave the purchaser the right to deal with the contractual interest. These last two submissions require closer analysis. By cl 6.4 of the Special Conditions, the purchaser agreed not to encumber or in any way deal with the Property or the purchaser's rights or interest in or under the contract of sale until after settlement. The purchaser could not deal with the "Property". It had contracted not to encumber the Property or its interest in that Property whether by a caveat or otherwise. At best, the purchaser had a nominee clause: Special Condition, cl 17.
57 Both parties referred to Brady King Pty Ltd v Commissioner of Taxation (2008) 168 FCR 558. That case concerned the issue of whether a taxpayer "held or acquired" a "freehold interest" in real property as at 1 July 2000 for the purposes of the provisions of the margin scheme in Div 75 of the GST Act. In that case, the relevant contract was entered into by the taxpayer prior to 1 July 2000 but the contract did not settle until after 1 July 2000. Following settlement, the taxpayer subdivided the land into stratum units and sold those units.
58 The Court stated (at [27]) that:
The Commissioner argued that the stratum units which the appellant sold were not "derived" from the equitable estate it held as purchaser, rather they were derived from the fee simple estate it obtained on completion of the purchase and registration (although senior counsel for the Commissioner disavowed any argument that what was acquired or held was the registered interest). But that fee simple was not conferred on the appellant by the Lands Title Office without regard to anything the appellant had previously done to acquire it. The appellant was only able to complete the purchase and obtain registration because, by entering into the contract it had obtained or acquired enforceable rights against (and of course obligations to) the previous owner of the property. The contract was the genesis or source of the appellant's interest in the stratum unit it supplied. In the language of the Commissioner's submissions, the contract was the parent.
(Emphasis added.)
Accordingly, the Court held that when the purchaser entered into the contract (prior to 1 July 2000), it acquired or held something that was an inextricable part of the interest which it sold after 1 July 2000: Brady King at [38]. That is not surprising.
59 The applicants submitted that at the time that the "enforceable rights" described in Brady King above were acquired by the purchaser, those rights were granted and "made available" to the purchaser. In relation to the Metro and Capri Contracts, the respective purchasers acquired rights enforceable by specific performance necessary for the completion of the contract: Brady King at [28]; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315. At this time, the purchasers also acquired various other rights and accepted various obligations under the contract (see [24] and [53] above), were the beneficiaries of any increase in the value of the land, and bore the corresponding risk of any reduction in value. While the purchasers did not acquire possession upon execution of the Metro and Capri Contracts, the applicants submitted that the term "made available" cannot depend solely on the giving of possession. In support of that proposition, the applicants submitted that because various interests in land were encompassed within the definition of "real property" (such as a reversionary or remainder interest), "made available" cannot be limited to physical use or access.
60 The applicants placed considerable emphasis on the decision of the High Court in Reliance Carpet summarised by the Full Court of Federal Court in Brady King at [35]-[37] as follows:
[35] In Reliance Carpet 82 ALJR 968; 246 ALR 448 a vendor of real property rescinded a contract of sale (in the sense of termination for breach by the purchaser; see the High Court's comments at [2]) and forfeited the deposit. The High Court held that GST was payable by the vendor on the deposit because the vendor had made a "taxable supply", that is a "supply for consideration".
[36] The High Court at [12]-[13] accepted the following argument of the Commissioner:
• The contractual promise of the vendor to convey the subject land on the completion of the contract was "supply" because it was a "grant" (s 9-10(2)(d)) of "real property", that is to say "any interest in or right over land" or "a personal right to call for or be granted any interest in or right over land" or "any other contractual right exercisable over or in relation to land" (Dictionary, s 195-1);
• The deposit received by the vendor was a payment "in connection with" that "supply" and so was "consideration" (s 9-15(1)(a));
• By reason of the special provision of s 99-5 (part of Div 99 dealing with deposits as security), the deposit was treated as consideration only if and when the deposit was forfeited; it was a "wait and see" provision (see [35], [42]).
[37] Their Honours noted at [13] that:
the identity of the subject matter of the contract, in accordance with ordinary principles of conveyancing, (w)as the title or estate of the vendor in a parcel of land rather than merely the parcel itself in a geographical sense.
61 The applicants also referred to Qantas Airways Limited v Commissioner of Taxation [2010] AATA 997. In that case, the Administrative Appeals Tribunal considered the question of whether GST was payable by an airline in circumstances where a passenger pays for airline travel but consequently cancels the booking or does not turn up for the flight and does not receive a refund. The Tribunal stated that it was acting consistently with the approach of the High Court in Reliance Carpet (at [15]) and held that GST was payable by the airline because the airline made a supply when it entered into an enforceable contract with the passenger, which created legally enforceable rights and obligations. The Tribunal stated at [9]:
The correct view of the Conditions of Carriage seems to us to be that they give rise to a contract enforceable at law between Qantas and each passenger. The contract, in turn, creates rights (s 9-10(2)(e)) and involves entering into obligations "to do anything" (s 9-10(2)(g)). There is, accordingly, an argument that at the time of the creation of the rights and the entering into of the obligations, which will generally be at the time, or shortly after, a reservation is made, there is a supply. Certainly it will be no later than the time of payment. The mutual promises or the payment will provide consideration.
An appeal was heard by the Full Federal Court on 24 May 2011. The judgment is reserved.
62 In my view, neither Reliance Carpet nor Qantas support the applicants' proposition that the real property was "made available" to the purchasers upon Southpark's entry into the Metro Contract or Capri Contract.
63 First, Reliance Carpet concerned Div 99 of the GST Act, which effectively provides that a deposit is not treated as consideration for a supply unless it is forfeited or applied as all or part of the consideration: s 99-5. In that context, the High Court stated at [42] that:
… upon the proper construction of the Act no question of two "taxable supplies" arises in that situation. The deposit is not treated as consideration for a supply (and therefore there is no taxable supply) unless, in the case of a sale that proceeds from contract to completion, it is applied (as normally it is on completion) as all or (more usually) part of the purchase price. If and when it happens that the deposit is applied as part (or all) of the consideration for the transfer of the land then the GST is attributable to the tax period during which that occurs, and there is only one taxable supply.
64 Division 99 of the GST Act provides a mechanism whereby a deposit is, in effect, held in abeyance pending determination of whether the transaction is proceeding (in which case the deposit becomes part of the consideration for the single supply upon completion) or whether the deposit is forfeited (in which case the deposit becomes the consideration for the single supply occurring when the contract was entered into). Reliance Carpet highlights that s 99-5 is essentially a "wait and see" provision (see [36] above), and that only where a deposit is forfeited will the "single supply" be deemed to have occurred when the contract was entered into. Given that the Metro and Capri Contracts proceeded to completion, Reliance Carpet does not assist the applicants' case.
65 Secondly, while Reliance Carpet and Qantas both recognise that entry into a contract may result in the acquisition of rights so as to give rise to a "supply" within the meaning of the GST Act, these cases concerned incomplete transactions in which the terms of those transactions were an essential element in the resolution of the issues to be determined. In such cases, the early supply stood by itself and, consistent with Reliance Carpet and Qantas Airways, could be a supply giving rise to an obligation to remit GST. On the findings by the Court and the Tribunal, there was no other economically substantive supply to which the early supply (in the form of rights) was a precursor.
66 In the present case, Brady King is also of limited assistance. It was not concerned with s 6(3) of the GST Transition Act (or s 9-5 of the GST Act). It concerned the application of the margin scheme under s 75-10 of the GST Act. In that context, it held that it was not necessary that there be a strict juridical identity between the strata-title units sold after 1 July 2000 and the nature of the interest held by the supplier before 1 July 2000. The Full Court held that it was sufficient that the pre-1 July 2000 contract was the "genesis or source" of the interest in strata units subsequently supplied, and that the purchaser in that case had an "interest" in the parent property which was recognised by law. Nothing in the Full Court's judgment addresses the question of the time at which real property is supplied for the purposes of s 6(3) of the GST Transition Act (or s 9-5 of the GST Act).
67 Furthermore, the limited utility of Brady King in determining the timing of supply in other cases was recently noted in Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232, which concerned the supply of a going concern provisions in s 38-325 of the GST Act. In that case the issue was whether the "day of the supply" was the day the contract was entered into or the date the contract settled. Greenwood J stated that the decision in Brady King was of no assistance in determining the construction of s 38-325(2) and the date of supply for the purposes of that section. (Greenwood J had regard to the contract in determining the timing of supply and found that "under the contract, settlement was treated by the parties as the day of supply by which time the seller's works would have been completed; indefeasible title obtained; and, other seller's obligations discharged.")
68 In the present case, as at 1 July 2000, the purchasers under the Metro and Capri Contracts had not in any sense obtained any real or practical ability to use the strata interests in apartments they contracted to acquire, and thus the relevant property had not been "made available" to them: see [52] and [53] above. Rather, the property was "made available" to the purchasers at settlement, which was after 1 July 2000.
69 Accordingly, the Metro and Capri Contracts fell within the temporal limitation in s 7(1) of the GST Transition Act and enlivened the GST Act. As the supplies (which occurred at settlement) under the Metro and Capri Contracts were for consideration (comprised of the deposits and balances paid at settlement), they constituted "taxable supplies" under s 9-5 of the GST Act and attracted GST.
70 Of course, this outcome is not unsurprising or unfair. It remains open to the applicants to seek to apply (as they in fact did) the margin scheme under s 75-10 of the GST Act.