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13 Jun 2019
13 Jun 2019
Appeal Status

Taxation Review Authority considers whether the repayment of a loan can generate an input tax deduction

The disputant challenged his self-assessment of GST for the two-month taxable period ending 30 September 2007

TRA 08/18 [2019] NZTRA 3

Income Tax Act 2007
Tax Administration Act 1994
Goods and Services Tax Act 1985


The disputant challenged his self-assessment of GST for the two-month taxable period ending 30 September 2007 (“disputed period”). He sought to claim additional input tax deductions for taxable supplies acquired during the development of two properties (“10 and 19”). This expenditure included a payment he made to a finance company (“XYL”).

The Commissioner of Inland Revenue (“the Commissioner”) viewed the payment to XYL as fulfilment of the disputant’s obligation under a loan agreement with XYL; the payment was not charged with GST and accordingly could not generate an input tax deduction. No tax invoices were available to support the claim.

The Tax Review Authority (“the Authority”) found in favour of the Commissioner.


The judgment was an orthodox application of the law to the facts, it confirms that repayment of a loan is not consideration for a supply.


In November 2006, the disputant purchased two properties with financial assistance from XYL. A mortgage with XYL was signed and settled in December 2006 and registered over the properties in January 2007. The purchase of the properties was returned in the period the payment was made, being the period ending 31 January 2007.

On 5 June 2007, the disputant sold 19 to unrelated third parties and the sale was settled on 6 August 2007. The disputant did not file a GST return during the applicable taxable period, 30 September 2007.

On 11 March 2016, the Commissioner received a GST return for the disputed period which included the sale of the property and expenditure on supplies of $28,000.00 (being five percent of the sale price of the property). The sales returned, and expenses claimed included GST at the rate of 12.5 percent (the then applicable rate). On 31 March 2016, based on the GST return filed, the Commissioner issued a return acknowledgement for $59,111.11 that was required to be paid, along with penalties and interest.

XYL Schedule

During the discovery proceedings, the disputant provided a schedule of expenses relating to the development of the properties. It appeared to show that the supplies were acquired by the disputant and the consideration for the supplies was financed by way of his loan with XYL.


The Judge identified three issues to be determined in the proceeding (at [3]):

  1. Whether the requirement for the disputant to provide tax invoices should be waived.
  2. Whether the disputant is entitled to additional input tax deductions.
  3. Whether penalties and interest should be remitted in whole or in part.


On the first issue, the Authority noted that the investigator had carefully analysed the schedule of expenses disclosed during the discovery process and had told the Authority that had this information been disclosed during the dispute process, a further $63,093.24 of expenses would have been allowed. Her Honour found that in the circumstances, there were proper grounds for the Commissioner to exercise her discretion and that a waiver of the requirement for tax invoices was appropriate (at [24]).

On the second issue, the Authority found the repayment of a loan to XYL could not generate an input tax deduction (at [30]). The Authority rejected the submission that the disputant only paid for supplies on the repayment of the loan and was entitled to claim input tax deductions on that payment. Instead the Authority found that the supplies were paid for by the disputant as amounts were drawn down on the loan (as recorded in the XYL schedule) (at [28]).

The Authority did not agree that anything exceptional existed in the funding arrangement which changed the nature of the parties GST obligations (at [30]) and “importantly, repayment of a loan is not consideration for a supply and the payment made by the disputant was not subject to GST input tax” (at [30]).

On the third issue, the Authority had no jurisdiction (pursuant to ss 120I and 138L (2) of the Tax Administration Act 1994 (“the TAA”)) to consider penalties and interest (at [33]). The Authority did set out the appropriate course of action for the disputant to take. (The appropriate course of action for a taxpayer who disagrees with the imposition of interest and/or penalties is to apply for remission under s 183A (Remission of Late Payment Penalty for Reasonable Cause) and/or s 183D (Remission of Late Payment Penalty and Interest under Part 7, consistent with collection of highest net revenue over time). Alternatively, a taxpayer can apply for financial relief under the hardship procedure contained in the TAA.)

The Authority increased the disputant’s input tax deductions for the disputed period to $93,437.30; amended the Commissioner’s assessment accordingly and otherwise dismissed the disputant’s claim (at [34]).