Supreme Court dismisses application for leave to appeal
2006 case note – application for leave to appeal dismissed by Supreme Court – GST, deregistration.
Supreme Court Act 2003
The applicants were unsuccessful in their appeal to the Court of Appeal, and sought leave to appeal to the Supreme Court. The first issue in dispute was whether the proviso to s. 51(1) of the GST Act 1986 is incorporated into s. 52(1). The Court examined all the submissions for the hearings below and concluded the applicant's argument on this ground was too weak to be the basis of a second appeal. The second issue was whether the Commissioner's second argument in the Court of Appeal that the applicants were not eligible for deregistration was recorded in the Statement of Position. The Court was satisfied that the argument was so recorded in general terms.
The applicants were the partners in the Jeffrey George Lopas and Lorraine Elizabeth McHerron Partnership, which was registered for GST from 1 October 1992 with a taxable activity of forestry. By subsequent deeds of trust dated 20 September 1999, a family trusts partnership was created, which was registered for GST from 1 October 1999.
On 4 October 1999, the applicants applied to cancel the original partnership's GST registration effective from 30 September 1999, on the basis that its taxable supplies for the 12 months following 30 September would be less than $30,000. The standard deregistration form was completed, stating that the applicants would be keeping business assets when registration ceased, including land with a cost price of $115,000. The Commissioner cancelled the registration with effect from 30 September 1999. The applicants took the view that s. 5(3) of the GST Act deemed the land to be an asset of the taxable activity supplied at a time immediately before deregistration, and paid GST on the cost price of the property, being the lesser of cost or open market value under s. 10(8).
On 8 October 1999, the applicants entered into an agreement for the sale and purchase of the land at a price of $375,000, inclusive of GST (if any) to the family trusts partnership. It was clear from the surrounding circumstances that the sale was contemplated before the GST deregistration of the applicants. The Commissioner subsequently amended the GST deregistration date from 30 September 1999 to 30 November 1999, resulting in output tax being payable on the sale price of $375,000, rather than the $115,000 previously envisaged. The applicants disputed the Commissioner's decision amending the effective date of deregistration from 30 September 1999 to 30 November 1999.
The Taxation Review Authority found in favour of the applicants, holding they were entitled to deregister for GST when they did.
The Commissioner appealed to the High Court. Panckhurst J held the sale of the property was not a cessation supply under s. 5(3) but a termination supply under s. 6(2), because there was an undoubted connection between the cessation of the taxable activity and the sale of the land. At the point of deregistration, beneficial ownership in the property had passed, and tax was payable under the general supply provisions rather than as a deemed deregistration supply.
The applicants appealed to the Court of Appeal on the basis that at the date of deregistration, beneficial ownership had not passed. They submitted that they had done what the legislation both expressed and contemplated, and if the Commissioner had wanted to argue there was a transfer of beneficial ownership, the argument should have been put to the Authority, but it was not.
The Commissioner responded that the original decision was made on the basis of incomplete disclosure by the taxpayer, and if the Commissioner had been in possession of all the relevant facts at the outset, deregistration would always have taken effect from 30 November 1999. Further, a scheme to sell the land was already on foot to sell the land and cease all taxable activities within four days, so the application to deregister should have been made under s. 52(3), not s. 52(1).
The Commissioner also cross appealed on the correct interpretation of the statutory provisions in question, submitting that the “amount” referred to in s. 52(1) refers to the figure of $30,000 in s. 51(1), rather than the whole of that subsection, including the proviso. The applicants argued that the proviso was to be included as a matter of interpretation, and no inconsistency within the Act would be created by inclusion of the proviso in that way.
The Court of Appeal accepted the Commissioner's arguments on the cross appeal, finding the reference to “amount” included only the figure of $30,000, not any exclusions to be found within the provisos to s. 51(1). The court also found the applicants should have applied to be deregistered for GST under s. 52(3), not s. 52(1). The Commissioner was acting under a misapprehension when the applicants were deregistered the first time and was entitled under s. 13 of the Interpretation Act to re-exercise his discretion and to set a new GST deregistration date.
Decision of Supreme Court
The Supreme Court noted the dispute focused on two grounds. The first is whether the proviso to s. 51(1) is incorporated into s. 52(1). The applicants said the sale proceeds of the land were excluded from the calculation of the threshold for GST. The Commissioner said the proviso to s. 51(1) did not apply and the sale proceeds should be included. The other point was whether s. 52(1) or s. 52(3) applies to deregistration in this case. The applicants contended the Court of Appeal was wrong to accept the Commissioner's arguments on the second point, because they were raised for the first time in that Court, and were not contained in the Commissioner's Statement of Position.
The Supreme Court regarded the merit of the applicant's argument on the first ground as too weak to be the basis of a second appeal. In coming to this conclusion, it directed the parties to file all submissions that were before the Authority and the courts below. The Supreme Court was also satisfied that the Commissioner's argument in the Court of Appeal that the applicants were not eligible for deregistration was recorded in general terms in the Commissioner's Statement of Position, and in the circumstances there was no miscarriage of justice. The Court also noted the Commissioner had consistently maintained that the applicants should have disclosed their intention to on-sell the land in question and, if they had done so, they would not have been eligible to be deregistered on 30 September 1999. In the circumstances the court concluded a matter of general commercial significance did not arise, and the application was dismissed.