The
High Court dissallowed a GST refund of $505,000 where serial tax litigant John
George Russell used a complex ownership structure for buying land having as the
ultimate beneficial owner a company struck off back in 1996.
Justice Edwards ruled the buyer and
seller in a $4.55 million land deal were “associated persons” and no GST refund
was payable. She further ruled the deal
amounted to tax avoidance in any event.
The court was told Staithes Drive
Development Ltd agreed in February 2006 to purchase a a block of land from
Whitby Holdings Ltd for $4.55 million.
Title was transferred immediately without the agreed deposit being
paid. Scheduled contract payments were
not paid on time and when paid were not paid in cash. Instead, credit for payment was made by
journal entries between Whitby as vendor and Capital Project Management Ltd, a
company controlled by a Mr Mason who was formerly director of Whitby but now director
of Staithes Drive. In the background
stood Mr Russell: companies he controlled were ultimate shareholders of both
Staithes Drive and Whitby.
When Staithes Drive claimed a GST refund
of $505,550 on the purchase from Whitby, Inland Revenue said the two parties
were “associated persons” as defined by the Goods and Services Tax Act and Staithes
refund was limited to the amount of GST paid by Whitby on its purchase of the
land. This was zero. Whitby was not
registered for GST.
Mr Russell argued Staithes Drive and
Whitby were not related. The legal
owners of each company were companies he controlled, but his companies were not
the beneficial owners, he said. They
held the shares in trust for others: a company called Emmanuel Construction Ltd
(in receivership and liquidation) in respect of Staithes Drive and two US
residents named as a Mr & Mrs Manning in respect of Whitby.
Justice Edwards said the “voting
interests” test for determining associated persons looks at legal ownership of
the shares, not beneficial ownership.
Staithes
Drive v. Inland Revenue – High Court (21.10.15)
15.118