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15 Aug 2019
15 Aug 2019
Appeal Status

Taxation Review Authority considers ‘taxable activity’ and entitlement to input tax deductions

The disputant challenged GST assessments for the "disputed periods" that had disallowed input tax deductions claimed by the disputant during these periods.

TRA 06/18 [2019] NZTRA 4
Legal terms
GST, Input tax, Input tax deductions, Taxable activity


The disputant challenged GST assessments for the periods ending 31 January 2017, 31 March 2017, 31 May 2017 and 31 July 2017 (“the disputed periods”) that had disallowed input tax deductions claimed by the disputant during these periods. Additionally, the Taxation Review Authority (“the TRA”) considered whether or not the disputant was engaged in a taxable activity.


The decision was an orthodox application of the law to the facts and may assist with future cases where a taxpayer is conducting intermittent activity that it claims constitutes a taxable activity.


The managing director (“MD”) of the disputant purchased a vehicle for $13,200 in his own name as the trustee of a foundation. Funds for the purchase of that vehicle were provided by his father. The MD proceeded to refurbish the vehicle. The purpose of this refurbishment, as told to the TRA, was to include features specific to the disputant’s business venture and also included accommodation for several people.

Following incorporation of the disputant the MD registered for GST on a payments basis. A GST return was filed by the disputant claiming an input tax deduction for the vehicle in the amount of $38,362.87. The Commissioner of Inland Revenue (“the Commissioner”) queried this claim and the return was withdrawn. The disputant then asked to be changed to an invoice basis for GST. This request was denied.

The disputant later filed a return including purchases and expenses of $50,079.38 which included an invoice of $50,000 for the sale of the vehicle to the disputant by the MD’s father. The input tax deduction that resulted from this was not paid by the Commissioner.


The TRA noted that it is a requirement of ss 20(2) and 24 of the Goods and Services Act 1985 (“the Act”), that a valid tax invoice be held before an input tax deduction can be made. Judge Sinclair found there was no evidence before her that the MD’s father had ever owned the vehicle. Therefore, there was no valid tax invoice.

Additionally, pursuant to s 20(3)(b)(i) of the Act an input tax deduction can only be made for a person on a payments basis to the extent that a payment in respect of that supply has been made during the taxable period. The invoice was never paid by the disputant.

The TRA noted that even if the MD’s father could be established to be the supplier of the vehicle and the transaction otherwise satisfied ss 3A(1), 8 and 20 of the Act the input tax deduction would be nil as the vehicle was a second-hand good and the parties to the transaction are associated parties in terms of s 2A(1)(i) of the Act. Judge Sinclair found that as the parties were associated the input tax deduction was limited under s 3(a)(3)(i) of the Act as no tax had been included in the original cost of the goods to the supplier.

Section 20(3C) only allows for an input tax deduction to the extent that the vehicle had been used for, or available for use in, making taxable supplies. Judge Sinclair held that the disputant failed to make clear what taxable supplies the vehicle had been used to make.

To claim an input tax deduction the disputant must also have been carrying on a taxable activity under s 6(1) of the Act. It is not sufficient to have an intention to carry on a taxable activity. The supply of goods must also be for consideration. The disputant failed to provide corroborative documentary evidence of supplies for the majority of invoices during the disputed periods.

The onus is on the disputant to show that the disputant was carrying on a “taxable activity” in accordance with s 6 of the Act. It is not appropriate to take an open-ended view as to when a taxable activity commenced. Accordingly, Judge Sinclair was not satisfied on the evidence that the disputant had been engaged in a taxable activity.

Goods and Services Act 1985