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13 Sep 2010
Appeal Status

Sale of share in a company which gives right to a lease is not a going concern

2010 case note - Court held a sale of shares and not tenanted property, therefore taxpayer's claim of a supply of a going concern of a tenanted property failed.

Tepe Holdings Ltd v Commissioner of Inland Revenue


The Court held that the true nature of the sale was a sale of shares and not of tenanted property. Therefore, the taxpayer's claim of a supply of a going concern of a tenanted property failed.

Impact of decision

There are no implications as the case turns largely on its own facts.

The taxpayer has filed an appeal in the Court of Appeal.


Tepe Holdings Ltd ("THL") acquired a right of occupation of the fourth floor ("Fourth Floor") in the building known as "Central House" at 26 Brandon Street, Wellington, which was let to two tenants on a monthly tenancy basis. THL acquired the right of occupation by purchasing shares in Central House Ltd ("CHL").

On 2 March 2007, THL entered into an agreement with Okato Management Ltd ("OML") to sell and buy the property described as: "exclusive occupation rights to the Fourth Floor of the building known as Central House, 26 Brandon Street, Wellington being Group E of the shareholding in Central House Limited being 19,750 shares".

The sale of the property was subject to the vendor (THL) giving vacant possession of the Fourth Floor.

On 14 March 2007, OML indicated in a letter to THL that it wished to retain the existing tenants on the Fourth Floor "at least for the moment".

On 15 March 2007, the parties agreed that OML would be "supplanted" by Central Beehive Ltd ("CBL") as the purchaser under the 2 March 2007 agreement.


The Court held that the true nature of the transaction was the sale of shares in CHL as opposed to sale of tenanted property as claimed by THL because it was the ownership of the shares that provided the right to a lease of the Fourth Floor.

The Court therefore concluded that the provision in the sale agreement about the sale of tenanted property as a going concern was not applicable.

The Court then went on to consider if it was wrong in its view about the true nature of the sale, whether there was sale of tenanted property and the provision in the agreement relating to it applied.

At the heart of the consideration was whether the sale agreement varied to that of sale of tenanted property, as the agreement originally provided that the property be sold with vacant possession.

The Court held that there was a variation of the sale agreement as there was clear evidence that OML/CBL had accepted the existing tenants of the property as part of the sale and accordingly there was a supply of tenanted property.

However, as the Court had decided that the true nature of the transaction was that of sale of shares, THL's claim that its supply was that of a going concern and therefore be zero rated for GST, must fail.

Goods and Services Tax Act 1985