There was an Alice Westland
The court was told that a company called Glenharrow Holdings purchased the mining licence in 1997 from a Mr Michael Meates. The licence had three years to run. It gave the right to mine for serpentinite and bowenite.
Strict terms governed any mining. It could only be carried out by hand. This on a 80 hectare prospect, 1200 metres above sea level with access only by helicopter. Previous mining operations on the prospect had closed down during World War One.
The licence had changed hands in 1993 (at a price of $5000), again in 1994 (for $100) before being acquired in 1996 by Mr Meates at a cost of $10,000. The licence was now valued at $45 million for the sale to Glenharrow.
The court was told that Glenharrow paid a deposit of $80,000 and delivered a cheque for the balance due of $44,920,000. Mr Meates in turn made a loan of $44,920,000 to Glenharrow taking security over the mining licence and all assets of the company. The loan was to be repaid without interest by three annual instalments.
For GST purposes, a mining licence is treated as secondhand goods. The purchaser can claim an input credit on the price paid. In this case that amounted to a claimed refund of $9.75 million by Glenharrow.
On the other side, Mr Meates had no GST liability as vendor since he was not registered for GST.
The court ruled that the artificial nature of the transaction meant the claimed GST refund was totally disproportionate to the economic obligations undertaken by Glenharrow. This was amplified by the fact that Glenharrow was minimally capitalised, had no assets other than the mining licence and had no realistic prospect of making sufficient mining profits within the remaining years of the licence in order to repay the $44.9 million loan.
Glenharrow Holdings v. Commissioner of Inland Revenue – Supreme Court (19.12.08)
06.09.001