Vendors registered for GST who signed a contract for the sale before 1 October 2010 and for whom settlement has not yet occurred may find some comfort in section 78 of the Goods and Services Tax Act 1985.  That section makes it clear that where the GST rate is changed at law every agreement is deemed to be modified to enable the vendor to add the increase in GST to the purchase price.

The exemption to this is where an agreement for sale and purchase specifically excludes this arrangement.  Notably, the standard form agreement for sale and purchase does not specifically state what the applicable GST rate is.  Presumably, a reference to the price being GST inclusive does not amount to an exclusion of this arrangement.

If so, the result is that if a GST registered vendor has signed a contract before 1 October 2010 but the time of supply arises on or after 1 October 2010 section 78 of the Act will entitle the GST registered vendor to increase the price by 2.5%.

By Debra Dorrington