No invoice where contract conditional
2014 case note – confirms that an invoice is a document that informs an obligation to make present payment – time of supply.
The vendors of subdivided lots ("the Trust") issued documents headed "GST Tax Invoice" before the agreements for sale and purchase of those lots became unconditional. The Taxation Review Authority ("TRA") held that an invoice required a debt due, which occurred only when the vendor had completed all steps necessary to demand payment.
Impact of decision
The decision confirms that an invoice is a document that informs an obligation to make present payment.
The Trust is in the business of land development and in 2010 entered into agreements for the sale and purchase of four lots of land before the subdivision of that land had been completed. Each agreement was conditional on the issue of a certificate of title and on satisfying section 225 of the Resource Management Act 1991, which required survey plans to be deposited and approved. Additionally, the purchasers paid deposits, which were held on a stakeholder status until the agreements became unconditional.
Before the goods and services tax ("GST") rate increased to 15% on 1 October 2010, the Trust issued a document for each sale headed "GST Tax Invoice" with GST to be paid at 12.5%.
The Commissioner of Inland Revenue ("the Commissioner") held that the document did not constitute an invoice for GST purposes as there was no obligation to pay at the time the document was issued. The Commissioner held that the supply of the four lots was deemed to have taken place in the GST period ended 30 November 2010 when the titles were issued and the stakeholder status of the deposits ended.
The Trust challenged the Commissioner's reassessments on the basis the documents were invoices and accordingly supply took place on 29 September 2010.
The issue as to whether the documents were invoices centred on whether there was an obligation to make payment at the time the documents were issued. The Trust argued that the obligation to make payment arose on the signing of each of the agreements for sale and purchase and payment of the deposits. The Commissioner argued there was no obligation until there was a debt due and that occurred only when the Trust had completed all steps required to demand payment under the terms of the contract. In this case, it required the deposit of the survey plans for three of the four lots and issue of title for all lots.
The TRA agreed with the Commissioner. The deposits were held by the Trust's lawyers as stakeholder until the vendor became entitled to them. The agreements themselves were subject to the deposit of the survey plans and issue of title, which did not occur until November 2010. Therefore, there was no present obligation to make payment at the time the documents were issued. Accordingly, the document headed "GST Tax Invoice" could not be an invoice for GST purposes.
Time of supply
As above, the TRA found the supply took place when payment was received by the supplier. Here, this was when the stakeholder status of the deposits ended and the Trust became entitled to them. Given the terms of the contract, this was when the agreements became unconditional, which was on 25 November 2010.
Goods and Services Tax Act 1985