02 May 2018

Tax: Ling v. YL NZ Investment Ltd

Onselling a Pukekohe property within months of purchase, Louise Ling was held liable to pay damages of $365,800 after GST status she declared in a $3.5 million sale was accurate when made but retrospectively reversed by Inland Revenue.  Her subsequent application for GST registration was approved by Inland Revenue but backdated to a date prior to the sale. 
Ms Ling purchased in July 2015 a house with stable yards and adjacent horse grazing covering 4.6 hectares at Station Road in Pukekohe, South Auckland.  She sold five months later in December for $3.5 million, the same price she paid to purchase according to online sales data.  She was later sued for $365,800 for telling the purchaser she was not registered for GST.  When purchaser YL NZ Investment Ltd applied for a GST refund on its December purchase, Inland Revenue advised that Ms Ling was in fact registered for GST and there would be no refund: property transactions between GST-registered taxpayers are zero-rated for GST.
The Court of Appeal was told Inland Revenue advised Ms Ling in September 2016 that her application for GST registration was approved. This was months after the sale of Station Road to YL NZ investment had been completed.  The same letter advised her GST registration was backdated to May 2015, a date before her Station Road purchase.  Ms Ling’s Station Road sale had seen her selling for $3.5 million (including GST) and her circling the front-page acknowledgement that she was not GST registered.  In the normal course of events, this would allow YL NZ Investments to recover GST on the purchase as a GST registered taxpayer.  But with her GST registration backdated by Inland Revenue she was now at law GST registered at the time of the sale.  YL NZ Investments could not recover GST.  It sued Ms Ling for breach of contract: the standard form agreement for sale and purchase contains a promise that GST status is correctly stated. 
Learning of the consequences of her backdated GST registration, Ms Ling sent a revised contract to YL NZ Investments eight months after the deal had been completed, seeking to reduce the sale price to $3.13 million plus GST.  The purchaser refused to sign.
The Court of Appeal ruled the standard form agreement used for sales and purchases incorporates from the Goods and Services Tax Act its definition of who is a ‘registered person’.  Ms Ling was at law a ‘registered person’ at the time she signed even though at that time she was not in fact registered under the Act; that came later and was backdated.
There were ‘swings and roundabouts’ in the back-dated registration.  While deemed to be GST registered for her sale to YL NZ Investments, Ms Ling is now also treated as GST registered for her prior purchase.
Ling v. YL NZ Investment Ltd – Court of Appeal (2.05.18)
18.094