2005 case note – whether land sales to be taken into account in calculating the threshold for deregistration – GST.
The Taxpayer was registered for GST and carried on a taxable activity of leasing a block of farmland. On 8 December 1999 he made application for cancellation of his GST registration on the grounds his turnover would be less than $30,000 in the next 12 months. The Commissioner of Inland Revenue (CIR) did not know the Taxpayer had entered an agreement to sell part of the land the same day and the application was granted.
After an investigation, the CIR reinstated the registration. He advised the Taxpayer by letter on 10 August 2000 he had done this under section 51(4) of the GST Act 1985, on the grounds that the Taxpayer remained liable to be registered as he had continued to receive rents in excess of the threshold.
The Taxpayer responded with a NOPA on 9 October 2000. The coversheet to the NOPA directed that the response notice be sent to the agent. The CIR mistakenly sent the response notice by post to the accounting firm which had issued it, which had been retained by the Taxpayer's linked accountant to provide advice on the dispute. The Taxpayer claimed the CIR had failed to effect service of his response notice and the NOPA was deemed to be accepted.
The partner of the accounting firm was summonsed as a witness for the CIR. He confirmed in evidence he had received the response notice on 30 November 2000 and had noted his file accordingly. He gave evidence of a meeting with the Taxpayer and his solicitor that day where he had handed over the response notice. The Taxpayer claimed the CIR could not prove this without relying on evidence arising at a meeting protected by legal professional privilege. He also denied this evidence of service was admissible as the CIR had not included it in his statement of position.
The CIR had served an amended statement of position, but a dispute arose as to the scope of a prior agreement relating to the exchange of amended statements of position, and whether or not that agreement extended to the evidence of service of the response notice.
Decision - procedural issues
The Taxation Review Authority ("the Authority") made a finding at paragraphs 230-231 as to the "content and effect of the disputable decision" before him. He found it was the decision to reregister the Taxpayer pursuant to section 51(4) (specifically sections (6) although not referred to) on the grounds the CIR was satisfied that the Taxpayer continued to receive rent and GST in the 12 months after deregistration to a value exceeding $30,000. However, in considering whether the Taxpayer was entitled to deregister he proceeded on the basis that section 51, section 52 and section 76 were all at issue (paragraph 161).
The Authority rejected the CIR's submission that the proceedings were out of time (paragraph 155). He also found that if he was wrong in his finding that the challenge was in time, that the CIR had conducted the dispute in a "confusing and contradictory" way, and this was beyond the control of the Taxpayer, so there were exceptional circumstances for not commencing the challenge in time, and he granted leave to commence the challenge on the date it was actually filed (paragraph 159).
The Authority found the CIR's response notice was valid even though it was sent to the wrong address. The Authority did not accept the CIR's submission the consultant accountant was an agent of the Taxpayer because that accountant made it clear to the CIR he did not have authority to accept a notice of response and the cover sheet on the NOPA indicated the response should go to the "agent" and the linked agent was then named (paragraph 41).
He also declined to uphold the Taxpayer's submission that the consultant's evidence that he received the response notice by post on 30 November 2000 and then gave it to the Taxpayer or his solicitor at a meeting with them the same day was inadmissible on the grounds of legal professional privilege. He found at that the evidence failed the first fundamental test in that it did not arise out of the relationship of confidentiality between lawyer and client (paragraph 78).
The Authority held (paragraph 67) the modes of service in section 14 of the Tax Administration Act 1994 are not exclusive. He found that provided the CIR was able to prove the document came to the notice of the Taxpayer in a timely fashion it had been served. On the facts, the inspector posted the letter and response notice on 29 November 2000 (paragraph 96) and it came to the attention of the Taxpayer on 30 November 2000 (paragraph 94).
The Authority found (paragraph 107) the agreement between the parties as to amended statements of position did not extend to the introduction of evidence concerning how the notice of response passed from the consultant to the Taxpayer. However he noted (paragraph 112-113) the CIR did not have to rely on the amended statement of position in this case, as the fact the document came to the attention of the Taxpayer was irrefutable - his advisors responded to it.
Decision - substantive issues
The fundamental point at issue with regard to re-registration was whether the sales were to be taken into account in calculating the threshold for deregistration. The Authority held at paragraph 256 that because of the proviso in section 51(1)(c) of the GST Act, it is not correct to include the sale proceeds of the land in determining whether or not the threshold has been breached.
The issue was dealt with by the High Court in CIR v Lopas where it was held a sale in contemplation before an application for deregistration was part of the taxable activity.
The Authority has distinguished the case on the basis the sales were entered into after deregistration, and there was no "arrangement" with any party before deregistration. He took no account of preparatory steps taken by the Taxpayer prior to making the application for deregistration, including entering an agreement to sell part of the land on the same day as he applied for deregistration.
Goods and Services Tax Act 1985, Tax Administration Act 1994