The Government will introduce measures to ensure that there is no disadvantage to either party to a long-term non-reviewable contract under The New Tax System.
This will address the situation whereby certain pre-existing contracts that do not have review clauses were to become subject to GST from 1 July 2005 without the ability of the suppliers to recover the GST, while the recipients of the supplies receive an input tax credit.
These long-term contracts will continue to remain GST-free until 30 June 2005. At that time, if a review opportunity has not occurred, suppliers will be able to adjust their prices to recover the net impact of the indirect tax reforms from the purchaser. That is, the supplier can pass on GST less the cost reductions associated with the supply.
The purchaser will be entitled to input tax credits for the GST charged by the supplier. The amendment will not apply to contracts where the recipient is not entitled to an input tax credit or where the contract specifically precludes the inclusion of the GST in the price of the supply.
Legislation to give effect to these measures will be introduced after details have been settled in consultation with relevant industry groups.
Although this will not apply until after 30 June 2005 it is being announced now so that parties affected have certainty and in particular are able to properly value long-term contracts in property portfolios.