Class action being mounted against ACT property developers for refund of GST

A loophole in taxation law could mean thousands of Canberrans may have been incorrectly charged GST when they bought a unit off the plan.

A class action is being mounted against several property developers for the refund of GST included on the purchase price of new residential units in the ACT.

IMF Bentham confirmed that, along with law firm Corrs Chambers Westgarth, it was investigating cases where developers charged buyers GST-inclusive prices, despite advice from the Australian Tax Office that no GST was chargeable because of a quirk in the legislation.

The advice related to an obscure ruling from 2010 when the Federal Court found that units constructed on land subject to a long-term lease were not considered "new residences" under the law and therefore should be input taxed.

At the time, residential premises were only considered to be "new" if they had not been sold before as a residential premises or had not been the subject of a long-term lease.

All land in the ACT is leasehold - not freehold - though, tenured for a period of 99 years from the Crown.

That meant developers of Canberra unit blocks would buy the lease to the land then split the lease into the unit title for each new owner.

However because the lease had previously been held by the developer, the premises the owners purchased weren't considered "new" and should not have been subject to GST, according to the Federal Court.

The loophole was closed in 2012 but still applied to developments that were commercially committed before January 27, 2011.

IMF Bentham said developers still included a supply tax in the price of the units they sold across the ACT and might have then kept a 10 per cent windfall.

Investment manager Oliver Gayner estimated thousands of Canberrans could be affected, with the bill to run into the millions.

"Our investigations are ongoing but to date we have identified around 15 different developments which we believe qualify for the class action. Ultimately that figure could rise to as much as 30," Mr Gayner said.

"At an average development size of 200 units, up to 6000 units could be in scope. Assuming an average purchase price per unit of $400,000, a typical claim size would be $40,000 GST plus interest."

Anyone who bought a residential in the ACT off the plan that settled in the past six years is urged to check their contract.