Provident Insurance Corporation Ltd v The Commissioner of Inland Revenue

JurisdictionNew Zealand
JudgeChurchman J
Judgment Date08 May 2019
Neutral Citation[2019] NZHC 995
CourtHigh Court
Docket NumberCIV-2018-404-1199
Date08 May 2019

Under the Tax Administration Act 1994

In the Matter of the Goods and Services Tax Act 1985

Between
Provident Insurance Corporation Limited
Plaintiff
and
The Commissioner of Inland Revenue
Defendant

[2019] NZHC 995

CIV-2018-404-1199

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TAMAKI MAKAURAU ROHE

Statutory Interpretation, Taxation — premiums paid on insurance policies — meaning of “financial services” — Goods and Services Tax Act 1986

Counsel:

L McKay and S Armstrong for Plaintiff

A Goosen and E Venter for Defendant

JUDGMENT OF Churchman J
Table of Contents

What this case is about

[1]

Admissibility

[6]

The defendant's challenge

[15]

The plaintiff's response

[17]

Analysis

[23]

Life insurance component

[34]

The issues

[36]

The arguments

[40]

Facts

[45]

The policies

[47]

The GAP policy

[51]

GST

[54]

Statutory interpretation —relevant legal principles

[58]

Analysis

[69]

Prior legal interpretations

[129]

Sections 3(1)(ka) and 3(1)(l)

[149]

Conclusions

[160]

Other matters

[166]

Costs

[167]

What this case is about
1

This is a case of statutory interpretation. The Goods and Services Tax Act 1985 (the Act) imposes a tax on the supply in New Zealand of goods and services by a registered person in the course or furtherance of a taxable activity. Along with extensively defining financial services, s 3 of the Act contains a number of exemptions in respect of them.

2

Provident Insurance Corporation Limited (Provident) offers insurance products. Some of those products are designed to mitigate risk in relation to the repayment obligations for credit contracts for the purchase of motor vehicles.

3

Two of those products are in issue in this case:

  • (a) the Credit Contract Indemnity (CCI) policy which covers a borrower's loan repayments upon the occurrence of specified insured events; and

  • (b) the Guaranteed Asset Protection (GAP) policy which, in the event a vehicle is written off in an accident, will cover the difference between the total loss pay-out received from a comprehensive motor vehicle insurer and any outstanding loan balance.

4

The question for the Court to decide is whether the premia paid for these two policies are subject to GST output tax, or exempt from tax under the financial services exemption.

5

Before addressing this issue, I will deal with a preliminary issue that arose in relation to evidence.

Admissibility
6

The defendant has challenged the admissibility of a brief of evidence filed by the plaintiff from Robin Moncrieff Oliver.

7

Mr Oliver is an acknowledged expert in tax policy. His evidence consists largely of expressions of opinion.

8

Section 25 of the Evidence Act 2006 determines whether or not his evidence is admissible in whole or in part. Section 25 relevantly provides:

25 Admissibility of expert opinion evidence

(1) An opinion by an expert that is part of expert evidence offered in a proceeding is admissible if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

9

As there is no dispute of relevant fact in these proceedings, the Court, in terms of s 25, does not need to “ascertain any fact”.

10

The issue is, therefore, whether or not the Court is likely to obtain substantial help from the opinions of Mr Oliver in relation to other evidence in the proceeding.

11

The only other witness who gave evidence on behalf of the plaintiff was Mr Owens. His evidence was largely non-contentious. He described the nature of the operations of the plaintiff and gave what he described as “the business context” for the two insurance policies which are the subject of these proceedings: the CCI and GAP policies. He also explained the process for selling these insurance products and settling claims under them, and further gave an outline of the tax dispute as he saw it.

12

The only other witness called was Marie Pallot who was called by the defendant. She, like Mr Oliver, was an acknowledged expert in tax policy and was called to give evidence solely in case the Court held Mr Oliver's evidence to be admissible. Her evidence was not directed at assisting the Court to understand Mr Owen's evidence but, like Mr Oliver's evidence, was opinion evidence about the policies which were said to underlie the “financial services” exception in s 3 of the Act.

13

The parties had initially intended to have the question of admissibility dealt with by way of preliminary hearing. However, the submissions and books of authorities relied on were filed very late: the defendant's on the last working day before the hearing, and the plaintiff's on the morning of the hearing. It was, therefore, not possible to address this matter sensibly at the start of the hearing.

14

At the request of the parties, the evidence was, therefore, admitted de bene esse. It was subject to the proviso that the Court saw some force in the submission that, on the face of things, the evidence appeared to be in the nature of legal submissions and, accordingly, inadmissible.

The defendant's challenge
15

Mr Goosen, for the defendant, submitted that the Courts have consistently expressed their disapproval of legal submissions being included in witness statements in proceedings of this nature. He referred to the observations of O'Regan J in Commissioner of Inland Revenue v BNZ Investments Ltd: 1

We agree that both witness statements contain much in the nature of submissions on legal issues. The difficulty which this poses is that it invites a response from the Commissioner from another tax expert essentially providing counter submissions. We do not see it as helpful to the Court to have the roles of counsel and expert witnesses intermingled in this way.

16

Mr Goosen objected to the fact that Mr Oliver's brief introduced into evidence a number of documents such as a GST commentary/guide prepared for the insurance industry 2 and three Government discussion documents on GST. 3 He submitted that

the Courts only take into account a limited number of sources of extrinsic materials such as Hansard, Bills, explanatory notes to Bills or reports from Parliament's Select Committee. Mr Goosen also referred to the disapproval expressed by the Supreme Court in the case of Penny v Commissioner of Inland Revenue of the practice of including what are legal submissions in the brief of expert taxation witnesses. 4 He submitted that the relevant intention was that of Parliament not that of experts or officials, and that it was for counsel to make submissions on such extrinsic aids that they consider inform the policy of and meaning of statutory provisions
The plaintiff's response
17

Mr McKay, for the plaintiff, submitted that the Court was likely to obtain substantial help from the briefs of both Mr Oliver and Ms Pallot. He noted that there was “significant common ground” in respect of the explanations by Mr Oliver and Ms Pallot of the economic and tax policy objectives underlying the financial services exemption. The opinion of Mr Oliver as to whether the supply of “non-core financial services” in certain situations was consistent with the purpose of the financial services exemption was submitted to be “entirely orthodox”. Mr McKay also noted that similar expert evidence had been admitted both in New Zealand and in Australia. He denied that the brief was in the nature of legal submissions.

18

Mr McKay accepted that the key issue in the proceeding was the interpretation of the GST Act and that this was an exercise ultimately for the Court. It was claimed that the economic policies and objectives that underpinned the GST Act were “factual matters, of direct relevance and consequence to the interpretation of the GST Act”.

19

In support of his arguments, Mr McKay relied on a number of Australian cases, in particular, the case of Woodside Energy Ltd v Commissioner of Taxation. 5 Mr McKay noted that the Federal Court in Woodside had admitted expert evidence in relation to economic theory. He also referred to a decision in which the High Court of Australia held that evidence on economic policy and objectives underpinning legislation should be admitted where the statute contains economic content, and where

the application of the statute to the facts combines legal and economic analysis which could only be understood if economic theory was considered. 6
20

Mr McKay referred to a decision of Thomas J in Lin v Commissioner of Inland Revenue. 7 He acknowledged that this case did not involve an admissibility challenge but referred to the fact that the Court had accepted expert evidence on the policy framework and commercial objectives underlying the creation of Double Taxation Agreements, as well as expert opinion on how certain provisions of the Agreement in dispute were intended to apply in light of these factors.

21

While Mr McKay acknowledged that Woodside and the other Australian cases he referred to were decided under the Australian Evidence Act 1995 (Cth), he said that the difference in wording between that statute and the Evidence Act was immaterial. The difference is that the Australian courts are required to determine whether the evidence “could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding”, 8 as opposed to: 9

… if the fact-finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding.

22

He sought to distinguish ...

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