Geocon and Division 142 - the Full Court clarifies when overpaid GST is “passed on”

The Full Court of the Federal Court of Australia (Full Court) handed down its decision in Geocon Land Holdings No 5 Pty Ltd v Commissioner of Taxation [2025] FCAFC 172 (Geocon). For the first time, a federal court has directly interpreted Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act), providing long‑awaited guidance on when overpaid GST is taken to have been “passed on” and when a refund may be available.

The case arose from a common scenario in the property development sector. Property developers who apply the GST margin scheme often take conservative positions to manage risk. Until recently, that caution came with a problem, if a developer later discovered it had overpaid GST, the Australian Taxation Office (ATO) could refuse a refund by arguing the GST had been “passed on” to purchasers.

The decision is particularly important for property developers using the margin scheme and for taxpayers who adopt conservative GST positions while awaiting certainty from the ATO.

Why Division 142 matters

Division 142 is designed to prevent windfall gains. Where excess GST has been passed on to another entity, the law treats that GST as always payable unless the taxpayer reimburses the recipient. In practice, the provision has often been used by the Commissioner of Taxation to deny refunds, particularly in profitable property developments.

What Division 142 does not do, as the Full Court has now made clear, is create a presumption that overpaid GST is always passed on.

The commercial context

Property developers often take a cautious approach when lodging GST returns, particularly where the margin scheme involves complex items such as non‑cash consideration or uncertain valuations. Before the Geocon decision, that caution carried real risk. Even where a developer later proved it had paid too much GST, the ATO could still refuse a refund by claiming the GST had already been built into sale prices and passed on to buyers.

The Full Court’s decision materially changes that risk profile.

Principles from Avon Products

In Avon Products Pty Ltd v Commissioner of Taxation (2006) 230 CLR 356, the High Court considered what it means for tax to be “passed on” under the former sales tax regime. The case did not deal with GST, courts and tribunals have often relied on its reasoning when applying Division 142.

The High Court made several key points that have shaped how “passing on” is assessed:

• Sales tax, and by extension GST, is designed so the final consumer bears the economic cost, even though the supplier collects and pays the tax (at para 7).

• Whether tax has been passed on depends on the facts of the particular case. Courts should not apply a fixed test or approach the question in the abstract (at para 6).

• As tax is generally expected to be passed on, the taxpayer must show that this did not occur in their specific circumstances (at para 10).

• The starting point is how the taxpayer actually set prices at the time, based on what they knew then (at paras 10-11).

• If a business sets prices to cover all costs, including tax, it will usually be difficult to show that the business absorbed the tax itself (at para 21).

Before Geocon, some tribunals treated these observations as setting a high bar for taxpayers seeking GST refunds. The Full Court later clarified that these principles do not create presumptions or rigid rules under Division 142.

The ‘ordinary’ case – M3K

M3K Services Pty Ltd and Commissioner of Taxation [2021] AATA 4416 (M3K) illustrates a typical case where a taxpayer failed to show that excess GST had not been passed on.

The taxpayer supplied cosmetic injectables and incorrectly treated all supplies as taxable. After discovering the error, it sought a refund and argued that its prices were driven by target profit margins rather than cost recovery. Prices did not change when the correct GST treatment was later applied.

The Tribunal rejected the claim. It found that, even if prices were not explicitly cost‑based, the taxpayer still expected its prices to recover all business costs, including GST. The taxpayer therefore failed to prove it absorbed the excess GST, which was treated as having been passed on.

The ‘rare’ case - WYPF

WYPF and Commissioner of Taxation [2021] AATA 3050 (WYPF) remains the only Tribunal decision where a taxpayer successfully showed that excess GST was not passed on.

The taxpayer was an ACT property developer using the margin scheme. While waiting for an ATO private ruling on how to value certain preparatory works, it took a conservative approach and excluded those works from its margin calculation. That decision reduced risk but resulted in overpaid GST.

The Tribunal accepted that the development was profitable and that costs were generally passed on through pricing. However, it found that it would be unreasonable to penalise a developer for deliberately overpaying GST while awaiting clarification of its liability. Importantly, the evidence showed that prices were set by reference to market conditions, not GST outcomes.

The Tribunal concluded that it would defy commercial reality to assume the developer built an additional GST buffer into prices where the market did not support it. On that basis, WYPF was treated as a rare case where excess GST was paid but not passed on.

Geocon

The facts in Geocon are similar to those in WYPF.

On 3 July 2015, Geocon Land Holdings No.5 Pty Ltd as trustee for the Geocon Land Holdings No. 5 Unit Trust (Geocon) acquired a Crown Lease in the ACT. It provided both cash and development services as consideration, including constructing, residential apartments for sale.

On 13 December 2017, the Commissioner issued a private ruling confirming that Geocon, could deduct the value of those development services when calculating the margin on apartments sales.

Despite the private ruling and believing it was “highly likely” entitled to the deduction, Geocon took a conservative approach. For the September 2017, December 2017 and March 2018 quarters, it calculated the margin without deducting the value of the development services. This resulted in Geocon overpaying GST.

Geocon argued that it did not pass the excess GST on to apartment purchasers and that Division 142 should not operate to deny Geocon a refund of the excess GST.

Geocon’s primary argument was that its pricing policy did not have regard to GST. Rather, its prices were set at the highest price that the market would bear.

The Tribunal’s Decision

In SFQV v Commissioner of Taxation [2024] ARTA 9, the Tribunal concluded that Geocon had failed to establish that the excess GST was not passed on to purchasers.

Notably, the Tribunal heavily relied on Avon Products and provided that:

• “it will be “comparatively seldom” that a taxpayer will succeed in proving…that excess GST was not passed on. The “usual position” is that profitable businesses recover all of their costs...” and Geocon “was, by all accounts, operating a profitable business” (at para 201).

• Geocon had “at no stage, adduced any evidence or suggested that particular sales by it…were unprofitable and or that its prices did not recover all costs” (at para 206).

• the argument that “purchasers…would have paid the market price and been indifferent to the GST implications” did not assist Geocon (at para 208).

• Geocon’s evidence regarding its belief that the excess GST was not payable “and whether it needed to have certainty in the form of a Private Ruling are not to the point” (at para 211).

• Geocon’s contentions that it acted conservatively also did “not assist” and were “at odds with the fact that” Geocon did not change its GST treatment of the non-monetary consideration until 30 June 2018 despite obtaining the private ruling in December 2017 (at para 214).

The Full Court’s Decision

The Full Court held that the Tribunal had erred in its factual inquiry under Division 142 and set the decision aside, remitting the matter for redetermination.

• The Court found that the Tribunal wrongly assumed that Geocon had passed on the excess GST simply because it was profitable and that it could only succeed by showing something unusual or out of the ordinary. Division 142 imposes no such presumption (at para 133).

• The Court also criticised the Tribunal for elevating general observations from Avon Products into legal principles that created hurdles not found in the statute. Starting from the view that taxpayers will rarely succeed risks misapplying Division 142 (at para 137 and para 144).

• Importantly, the Court recognised that it is common for taxpayers to overpay GST they believe is not payable to avoid penalties and interest. The Tribunal’s focus on profitability led it to dismiss relevant evidence, including Geocon’s belief about its GST position and its reasons for acting conservatively (at para 147).

• The Court confirmed that evidence of market‑based pricing and expected profitability was relevant, but not determinative, of whether the excess GST had in fact been passed on (at para 196 and para 197).

Key takeaways

The Full Court has reset how Division 142 should be applied. The provision turns on evidence and commercial reality, not assumptions about profitability or generalised views about tax being passed on. The decisive question is how the taxpayer actually set prices, the market conditions at the time, and why the GST overpayment occurred.

Geocon sends a clear message to developers and advisers that pricing discipline and contemporaneous records matter. Clear evidence of pricing methodology, market drivers and tax decision‑making will shape outcomes where GST positions are challenged years later.

What comes next

The Commissioner has applied for special leave to appeal to the High Court. Until then, Geocon stands as authoritative guidance on Division 142 and represents a clear recalibration of how “passing on” must be assessed.

For taxpayers who have overpaid GST under the margin scheme, the decision provides a stronger, evidence‑based pathway to recovery and a welcome correction to an area of law that had become increasingly rigid in its application.

Authors: Lisa To, Tiana Dumanovsky & Jonathon Maroun

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.