DEVELOPERS and businesses are set to benefit from a Federal Court ruling that has found goods and services tax doesn't need to be paid on a forfeited property deposit.

Gold Coast legal expert Joe Welch, a partner at Hickey Lawyers who practices extensively in commercial law, says the decision is 'at odds' with Australian Taxation Office policy and could potentially have a significant impact on the region.

"This decision is a coup for high-rise and commercial developers, but could potentially impact on a range of other industries," he says.

"Arguably, the ruling could apply to any business that takes a deposit - for example airlines, builders or accommodation providers who take deposits forfeited for 'no shows' or breach of contract."

The ruling, which was handed down last month, was in contrast to an earlier decision made by the Administrative Appeals Tribunal and ATO policies.

The case related to a $297,500 forfeited deposit for the purchase of a Victorian property, which the owner, Reliance Carpet Company Pty Ltd, successfully argued was not payment for a taxable supply.

Welch says the ruling is an 'important win' for developers of commercial properties with high-rise units sold off the plan.

"The decision entitles developers to keep the whole of the deposit, which is effectively compensation for a loss when a sale does fall through," he says.

"Previously, developers would lose one-eleventh of the deposit in GST if the buyer defaulted and, to make matters worse, the buyer in default could in some cases get
the benefit of a credit for the GST paid by the developer."

Welch says although the decision has set a new precedent, the ATO has indicated an appeal in the High Court is likely.

"I would not treat this ruling as a licence to spend the GST just yet in case the ATO wins an appeal in the High Court and claims back any unpaid GST, which it would be entitled to do," he says.

"Keep the money in the bank for now and wait for an ATO ruling or final decision from the High Court."