The Supreme Court of Victoria recently heard an appeal affirming the application of the compensatory principle in civil proceedings. The Court has confirmed where a plaintiff is entitled to claim input tax credits for a cost or expense, damages should be calculated without including GST.
The dispute stemmed from a motor vehicle collision, where the defendant negligently damaged a vehicle owned by rental vehicle company, Car Accident Rental Solutions (Plaintiff). The Plaintiff initiated proceedings seeking damages reflecting the GST inclusive market value of the vehicle in its undamaged state, subtracting the salvage value of its damaged condition plus ancillary items. Both parties agreed on the value of the vehicle. The issue that arose was whether the Plaintiff was entitled to recover the GST inclusive amount for the value of their vehicle in circumstances where they are registered for GST and entitled to receive the GST payable as an Input Tax Credit on the purchase of a replacement vehicle. In Australia, businesses that are registered for GST are eligible to claim Input Tax Credits for the GST they incur on purchases essential for conducting taxable operations. This encompasses acquisitions of goods such as motor vehicles which are purchased for business purposes.
At first instance, the Magistrate found that the Plaintiff was entitled to damages equal to the GST inclusive amount for the value of their vehicle. The Magistrate’s reasoning, later found to be incorrect on appeal, was that there was no evidence demonstrating the Plaintiff had purchased a replacement vehicle which would entitle them to claim an Input Tax Credit and that it could not be presumed that the Plaintiff was entitled to claim such a credit.
The decision was appealed by the Defendant pursuant to s 109 of the Magistrates’ Court Act 1989 (Vic) asserting that the Magistrate had misapplied the compensatory principle in awarding damages that included GST. Justice Gorton allowed the appeal, opining that the learned Magistrate was too largely focused on whether or not the Plaintiff had purchased a new vehicle rather than looking at what it would have ultimately cost the Plaintiff to purchase a replacement vehicle after taking into account any Input Tax Credit they would have been entitled to. Justice Gorton’s decision is consistent with the Court of Appeal of New South Wales in Gagner Pty Ltd v Canturi Corporation Pty Ltd and, more recently, in Millington v Waste Wise Environmental Pty Ltd where the Court found that a damages award should be calculated excluding GST in situations where the plaintiff can claim a full input tax credit for a cost or expense. While this approach may yield different valuations of damages among individuals – some who are registered for GST and entitled to claim an Input Tax Credit and those who are not, it reflects the need to assess liability based on the specific impact on the injured party.
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