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09 May 2008
Appeal Status
Not appealed

Commissioner's output assessment successfully challenged

2008 case note – Taxpayer received input tax credit through the CIR's default in filing a case stated but this did not mean the taxpayer had a taxable activity.

TRA 036/02 Decision 6/2008


The taxpayer had received an input tax credit through the Commissioner's default in filing a case stated but this did not lead to the conclusion the taxpayer had a taxable activity.


The taxpayer company had claimed a GST input on the purchase of residential property arguing the residential property was acquired for property development (a taxable activity) and was only rented (an exempt activity) to defray costs. The Commissioner took the view that the input claim was not available as there was an exempt activity being conducted. The taxpayer requested the case to be taken to the Taxation Review Authority (TRA); however, the Commissioner failed to file that case in time and the taxpayer's objection was allowed by the TRA (see Case S49 (1996) 17 NZTC 7,331).

Subsequently the Commissioner formed the view that Case S49 meant the Commissioner had to accept (notwithstanding his own views to the contrary) that there was a taxable activity conducted by the taxpayer and the Commissioner assessed output tax on the disposal of the property accordingly. This had the effect of offsetting the input tax credit created by Case S49.

The taxpayer objected to this on the basis that there was no taxable activity and the decision in Case S49 was a penalty upon the Commissioner. The taxpayer also challenged the transfer done to offset the output and input, and attempted to claim the input tax credit again, relying on the argument that the effect of Case S49 was to penalise the Commissioner and not to allow its objection.


The TRA found:

  • the result of  Case S49 was not a penalty to the Commissioner as the TRA had no jurisdiction to penalise any litigant before it: para [46]
  • therefore, it was not open to the taxpayer to claim the input tax a second time: para [47]
  • the offset was not amenable to the TRA's jurisdiction sec 129 TAA 1994: para [48].

The decision in Case S49, however, did not compel the Commissioner to accept that the taxpayer had a taxable activity. That issue was not considered or determined in Case S49 (para [51]) which turned solely upon whether the Commissioner had filed in a timely manner at the TRA (paras [61], [63]). Nothing further could be read into that decision and it represented a windfall to the taxpayer.

The TRA recited relevant authority addressing the use of residential property in GST (Carswell, Morris) to conclude it could not come to any conclusion regarding the presence or absence of a taxable activity by the taxpayer. It invited the parties to return to the TRA to address this issue (paras [72-79], [84]). It also invited the Commissioner to consider whether he wished to pursue this point given the Commissioner's apparent belief there was no taxable activity.

Goods and Services Act 1985, Taxation Review Authority Regulations 1994