Simpson and Downes v Commissioner of Inland Revenue
| Jurisdiction | New Zealand |
| Judge | Dobson J |
| Judgment Date | 17 May 2011 |
| Neutral Citation | [2011] NZHC 490 |
| Docket Number | CIV-2010-485-1860 |
| Court | High Court |
| Date | 17 May 2011 |
Commissioner of Inland Revenue
[2011] NZHC 490
CIV-2010-485-1860
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
Originating application under s34 Receivership Act 1993 (Court supervision of receivers) for directions — dispute as to whether receivers were personally liable to account for GST on the sale of six properties effected by them — GST amounted to over $1 million — Commissioner was holding the amount in the event receivers were held to be personally liable — whether receivers were liable to account to the Commissioner for GST charged as an output tax on the respective sales of relevant properties.
J Toebes and C Carey for applicants
H Ebersohn and P O'Regan for respondent
RESERVED JUDGMENT OF Dobson J
| Introduction | [1] |
| The provisions | [11] |
| Approach to interpretation | [15] |
| Position as caveator | [45] |
| Alternative bases for attributing liability to the receivers | [51] |
In form, these proceedings constitute an originating application by receivers under s 34 of the Receiverships Act 1993 for directions. In substance, the proceedings reflect a dispute as to whether the receivers are personally liable to account for goods and services tax (GST) on the sale of six properties effected by them.
The extent of GST without the addition of any interest or penalties amounts to some $1.215 million. The respondent (the Commissioner) is holding an amount which it is agreed would be accepted in full and final settlement of the GST liability in respect of the relevant supplies, in the event that the receivers are held to be personally liable to pay the GST. On the other hand, if it is decided that there is no personal liability on the receivers, then it is agreed that the money would be returned to them with the consequence that the Commissioner would be left as an unsecured creditor of the company in respect of which the receivers have been acting.
The parties also agreed on a set of facts treated as sufficient to assess the arguments arising, and on the terms of the questions that would be posed in order to obtain the directions sought by the receivers.
The company in receivership, Capital + Merchant Investments Limited (CMI) is owned by the same shareholders as a former finance company, Capital + Merchant Finance Limited (CMF), which is in receivership and liquidation. CMI was formed to acquire all the assets of CMF, which acquisition CMI financed by borrowings from Fortress Credit Corporation (Australia) II Pty Limited (Fortress). To secure those advances, Fortress took a General Security Agreement over all the assets of CMI, which comprised the assets it had acquired from CMF. Those assets included secured loans over the properties, the subsequent sale of which are the taxable supplies giving rise to the GST liabilities relevant in the present proceedings.
After CMI defaulted on its obligations to Fortress, the present applicants were appointed as receivers of CMI. There were instances of default by the mortgagors of each of the mortgaged properties, and the receivers have exercised powers of sale contained in the mortgages over the six properties. CMI's indebtedness to Fortress exceeded the gross realisation of all assets including the proceeds of the mortgagee sales.
I was not advised, but assume, that the indebtedness of each of the mortgagors to CMI was greater than the amounts realised on sale of their properties. Certainly, there was no reference to any competing claim to account to the mortgagors for amounts beyond what was owing by them.
A sample of the agreements for sale and purchase that was exhibited to an affidavit from Mr Downes used the form approved by the Real Estate Institute of New Zealand Inc and the Auckland District Law Society, in which the provision for payment of the purchase price is stipulated as the price agreed by the parties, “…plus GST (if any)”. The agreement stipulated CMI (In Receivership) as the vendor, acting in exercise of its mortgagee's powers. The settlement statement identified the vendor in the same way, and stipulated the purchase price as the price agreed in the agreement for sale and purchase, plus GST on that amount. I am to assume that all of the transactions were settled in accordance with settlement statements prepared in that way.
The essence of the argument for the receivers is that the provisions of the Goods and Services Tax Act 1985 (GST Act) attribute the liability to pay that GST to the mortgagee, that the Commissioner is an unsecured creditor of the mortgagee, and that there are no grounds for attributing personal liability to the receivers to pay the amounts of GST included in the sales, and recovered by them. That analysis would leave the receivers free to account to Fortress for the net proceeds of sale, plus the amount recovered from the purchasers as the GST payable on the sales.
The contrary stance for the Commissioner is that the GST Act imposes a tax on supplies, levied upon those effecting taxable supplies so that liability is imposed on those through whose hands the consideration for the taxable supplies had to pass. Here, the relevant provisions are to be interpreted as attributing the liability to the receivers as the persons in effective control of the taxable supplies of property. There were certain additional and alternative arguments advanced, and I shall address them later in this judgment.
Mr Toebes argued that if the approach just described was intended, then it has not been achieved in the anomalous situation where the mortgagee exercising powers to sell (supply) property belonging to the mortgagor was not obliged to be registered for GST because its business was solely that of exempt supplies, in the nature of financial services. He argued that the receivers are not caught as suppliers by any of the provisions of the GST Act. They are exercising the mortgagee's powers so that their conduct comprises a supply by the mortgagee. Here, CMI filed a GST return but did not make payment of the amounts involved. The Commissioner had rights as an unsecured creditor of CMI.
The directly relevant provisions of the GST Act are ss 5, 17 and 58, the material parts of which provide:
5 Meaning of term “supply”
(1) For the purposes of this Act, the term supply includes all forms of supply.
(2) For the purposes of this Act, where any goods acquired (whether in terms of a hire purchase agreement … or otherwise) or produced by a person (that person being referred to hereafter in this subsection as the first person) are sold, under a power exercisable by another person (that person being referred to hereafter in this subsection as the second person), in or towards the satisfaction of a debt owed by the first person, those goods shall be deemed to be supplied in the course or furtherance of a taxable activity carried on by the first person (being deemed a registered person), unless—
[two exceptions then follow which are not relevant for present purposes]
17 Special returns
(1) Where goods are deemed to be supplied by a person pursuant to section 5(2) of this Act, the person selling the goods, whether or not that person is a registered person, shall —
(a) Furnish to the Commissioner in the prescribed form a return showing—
(i) That person's name and address and, if registered, registration number; and
(ii) The name, address, and, if registered, registration number of the person whose goods were sold; and
(iii) The date of the sale; and
(iv) The description and quantity of the goods sold; and
(v) The amount for which they were sold and the amount of tax charged on that supply; and
(vi) Such other particulars as may be prescribed; and
(b) Pay to the Commissioner the amount of tax charged on that supply; and
(c) Furnish to the person whose goods were sold, details of the information shown on the return referred to in paragraph (a) of this subsection,—
and the person selling the goods and the person whose goods were sold shall exclude from any return, other than a return required pursuant to this subsection, which either or both may be required to furnish under this Act, the tax charged on that supply of goods.
By the terms of s 58(1), for the purposes of that section:
-
• “Incapacitated person” means a registered person who dies, or goes into liquidation or receivership, or who becomes bankrupt or incapacitated.
-
• “Specified agent” means a person carrying on any taxable activity in a capacity as personal representative, liquidator or receiver of an incapacitated person, or otherwise as agent for or on behalf of or in the stead of an incapacitated person.
The operative provision in s 58(1A) is as follows:
58 Personal representative, liquidator, receiver, etc
…
(1A) Despite sections 5(2) and 60, a person who becomes a specified agent is treated as being a registered person carrying on the taxable activity of the incapacitated person during the agency period, and the incapacitated person is not treated as carrying on the taxable activity during the period.
Although not directly relevant to analysis of the capacity in which the receivers participated in the relevant supplies, s 51B is also relevant in broadening the categories of persons to whom liability will be attributed in other circumstances where taxable supplies occur. It provides:
51B Persons treated as registered
(1) For the purposes of Parts 3 and 6, and of Part 9 of the Tax Administration Act 1994, the following are treated as registered persons:
(a) a person who is not otherwise a registered person but who supplies goods or services, representing that tax is charged on the supply:
(b) if goods are treated by section 5(2) as being supplied by a person—
(i) the...
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