Court of Appeal indicates that the statutory notice requirements regarding the payment of GST in property transactions cannot be waived
2017 case note - statutory notice requirements regarding the payment of GST in property transactions cannot be waived – 'zero-rated', 'waiver'.
This is a dispute between a vendor and purchaser involving the payment of goods and services tax (“GST”) in a property transaction. The dispute concerned whether there had been a waiver of the statutory notice requirement regarding the payment of GST under s 14C of the Tax Administration Act 1994 (“TAA”) and s 78F of the Goods and Services Tax Act 1985 (“GSTA”). The Attorney-General was joined to the appeal as intervener.
This decision indicates that courts will be inclined to find that the statutory notice requirement under s 78F of the GSTA cannot be waived.
The appellant entered into agreements to sell various properties to the respondents (“the agreements”). The purchase price was $2,430,000 “[p]lus GST (if any)”. Schedule 2 to the agreements recorded that the respondents were not, and at settlement would not be, registered for GST and that they did not intend at settlement to use the properties for making taxable supplies. This meant that GST at 15 per cent was payable on the purchase price.
At settlement, a dispute arose. The appellant insisted there had not been proper notice of a change to the respondent’s GST position under s 78F(2) of the GSTA and s 14C of the TAA, which meant that GST on the purchase would be zero-rated. The respondents issued summary judgment proceedings seeking an order that the appellant settle on the zero-rated basis. They also sought an order that caveats they had lodged against the properties not lapse. The High Court held that summary judgment was not appropriate, but did, however, make an order sustaining the caveats, as in the Court’s opinion, it was reasonably arguable that in issuing zero-rated settlement statements, the appellant had waived its right to timely written notice of the relevant GST information. The current proceeding is an appeal of this decision.
The High Court Decision
The High Court considered that, if the respondent purchasers failed to provide written notification of the matters under s 78F(2) of the GSTA, the appellant vendor was entitled to proceed on the basis that GST at 15 per cent applied. The High Court also considered that the requirement under 14C of the TAA for written notice could be waived, because the notice requirement was for the convenience of the vendor. The High Court also had the same view of the contractual obligation to provide written notice of any change to the purchasers’ GST status.
The High Court considered that it was not appropriate to grant summary judgment. First, because the respondents had not included in their pleading evidence that they informed the appellant that they did not intend to use the land as a principal place of residence, and second, as they had not pleaded that they were ready, willing and able to settle.
The High Court found that an order sustaining the caveats was appropriate because it was reasonably arguable that in issuing zero-rated settlement statements, the appellant had waived its right to timely written notice of the relevant GST information. If so, the appellant was not entitled to insist on settlement on the basis of GST at 15 per cent, its settlement notices issued on that basis would be invalid, and the agreements would remain on foot.
The appellant submitted that the High Court was wrong to find there was a reasonably arguable basis for sustaining the caveats. It submitted that the statutory requirement for written notice of the s 78F(2) matters cannot be waived by a vendor and that there was no waiver of the contractual requirement for notice at least two working days before settlement.
The Attorney-General supported the appellant’s submission that the requirement for notice of the s 78F(2) matters cannot be waived. He submitted that s 78F of the TAA exists primarily for the benefit of the tax base and to enable the efficient functioning of the GST system. As such, its requirements cannot be waived by a vendor. He also submitted that s 11(1)(mb) of the GSTA has a mandatory effect. Regardless of what the vendor knows at settlement, GST is zero-rated if the criteria in s 11(1)(mb) are met. Where the wrong rate of GST is applied at settlement, there are provisions to correct the position.
The Court stated that, in order to sustain the caveat, the respondents must establish a reasonably arguable case that they have a relevant interest in the properties.
The Court considered that it was arguable that the provision of amended settlement statements with zero-rated GST, together with a request for GST numbers which were provided, was a waiver of the contractual requirement for written notice. The Court also considered that it was arguable there was no effective withdrawal of the waiver. The respondents had proceeded on the basis that settlement would be on a zero-rated GST basis. The appellant then sought to insist on the contractual provisions on the day of settlement as though there had never been any waiver.
The Court stated that the issue of statutory waiver did not arise, because the statute requires the notice to be given by or on settlement. The respondents could have complied with the statute by giving notice on the day of settlement. The Court expressed reservations about the High Court’s view that the statutory position could be waived. Although it was not necessary for the Court of Appeal to decide this point, the Court considered that there was force in the Attorney-General’s submission that the provision is for the benefit of the tax base and not for the sole benefit of the vendor.
The Court concluded that the respondents arguably had a caveatable interest in the properties.
The appeal was dismissed. The appellant was to pay the respondents costs for a standard appeal on a Band A basis and usual disbursements.
Goods and Services Tax Act 1985, ss 11 and 78F Tax Administration Act 1994, s 14C