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10 Aug 2012
Appeal Status
Not appealed

No taxable activity

2012 case note - taxpayer objected to its input credit claims being disallowed and being deregistered for GST – taxable activity, deregistration.

Taxpayer Ltd (in receivership) v Commissioner of Inland Revenue [2012] NZTRA 04


The taxpayer objected to its input credit claims being disallowed and being deregistered for goods and services tax (GST). The taxpayer did not prove it had a taxable activity and its other grounds of objection (sham, onus on the Commissioner, bad faith and malicious harassment) were all rejected.

Impact of decision

This finalises an objection first made in August 1996.


This proceeding originally involved two tax types, income tax and GST. The income tax issue was resolved in favour of Taxpayer Limited ("the objector") thus leaving the GST issues to be determined.

This case is very similar to the [2012] NZTRA 05 decision with the slight variation that the objector in this case is not in receivership and did not enter into the arrangement involving an agency and management agreement. The judgments were issued on the same day, mutatis mutandis. The evidence of the parties and Judge Barber's reasoning were imported from the other case.

The objector was incorporated on 29 June 1992 and was registered for GST on 11 June 1992 on a six-monthly return basis and on a payment basis. It described its taxable activity as "financial asset broking service" and remains registered on the New Zealand Companies Office Register. It is neither in receivership nor liquidation.

In August 1996, the objector was reassessed for the GST periods ended 31 March 1993 to 31 March 1996 inclusive and was deregistered.


Did the objector supply sufficient evidence in support of its GST registration?

To qualify for opting to register for GST, the objector must carry on a "taxable activity" or intend to do so from a specific date (section 51(3) of the Goods and Services Tax Act 1985).

It was submitted by the objector's representative that the objector had a taxable activity in respect of transactions which involved trading in shares and securities and was also involved in transactions which earned fees for financial services and interest.

Evidence was given on behalf of the Commissioner at the hearing that the objector failed to show that it was carrying on a taxable activity. In particular, it was noted that there was correspondence between the objector's tax agent and the Commissioner requesting records (particularly in relation to the 31 March 1996 return period) but no documents or other evidence were supplied to demonstrate that the GST registration of the objector was correct and should be maintained.

Judge Barber found that the objector failed to return any taxable supplies for four years and agreed with the Commissioner that the objector provided no evidence to support its contention that its financial asset broking service is a GST taxable activity.

Did the objector justify the failure to account for any output tax during the period it was registered for GST? 

The objector's representative submitted that the reason why the objector did not return output taxes was because:

  • ... there had been no transactions so far that carried out an output tax liability. However there is a possibility that there will be transactions from time to time that will carry an output tax liability and if and when such occurs then output tax will become payable.

Furthermore, the objector's representative explained that the GST transactions were, in a sense, transactions between various group entities and that, effectively, there would be no loss to the revenue because another group entity returned the output tax while the present objector claimed the inputs. He regarded the overall effect as neutral.

A witness for the Commissioner emphasised the correspondence between the Commissioner and the objector's tax agent, in particular the letter issued on 24 July 1996, which outlined that the objector had returned no outputs since registration in 1992 and that if no substantive evidence or information was provided within 10 days, the Commissioner would cancel the objector's registration and seek to recover input tax refunds paid to the objector.

The objector's representative did not dispute this point, but rather complained (via a letter dated 8 August 1996) of the time frame to provide the requested information and raised questions regarding the Commissioner's actions.

No documents or other evidence were supplied by the objector to demonstrate that the GST registration of the objector was correct and should be maintained.

On the evidence available, Judge Barber found that, over material times, the objector failed to account for output tax and that it was unclear as to what transactions the claimed inputs related to.

Other grounds of objection

Judge Barber found that the Track C objection by the objector's representative was not sustainable because it was not part of the original objection and in any event it was irrelevant because it was not applied by the Commissioner to the GST.

The objector also invoked a number of non-tax-specific grounds of objection:

  1. There is a threshold onus on the Commissioner to show any assessments are not manifestly arbitrary, or demonstrably unfair.
  2. The assessments were motivated by bad faith for the ulterior motive of destroying the business of the objector's tax agent and that this is an illegal and proper purpose.
  3. The objector suffered unfair and questionable conduct by the Commissioner as part of malicious harassment of the objector's tax agent.
  4. The Commissioner cannot backdate deregistration.
  5. The objector's GST registration was investigated earlier and cannot be revisited.
  6. The time bar applies.

Judge Barber rejected these grounds of objection, found that none of the contentions made by the objector were supported by evidence to establish its position and such evidence as is available supports the Commissioner. Judge Barber also found that the other grounds of objection are ill founded and inapplicable.

Accordingly the objection was dismissed and the GST deregistration and reassessments were confirmed.

Goods and Services Tax Act 1985