They told the real estate agent they were registered for GST then signed a contract in 2019 selling their Auckland Takapuna property for $2.5 million stating they were not registered. This was a breach of warranty. Result: the Dixons had to pay $342,000 compensation to buyer, GST-registered property developer Takapuna Residence Development Ltd, for the GST input credit it lost.
Special rules govern GST on sales of land. If both vendor and purchaser are GST registered, the transaction is zero-rated. This avoids the administrative hassle of a money go round with the vendor paying GST to Inland Revenue and the purchaser later recovering the same from Inland Revenue as an input credit.
Developers buying existing homes can claim GST input credits; they are GST registered and in the business of property development. The family home being sold is not usually a business asset, but is treated on sale to a GST-registered developer as if it were ‘second-hand goods.’
Takapuna Development did not learn of the Dixons’ GST status until Inland Revenue turned down its claim for a GST credit, being told the Dixons were GST registered and the $2.5 million transaction was zero-rated.
In partial defence, the Dixons argued Takapuna Development was not entitled to the full $342,000 because part of the purchase price was funded by a related company. Takapuna Development should not get compensation for someone else’s loss, they said.
GST is levied on ‘supply,’ not payment, the Court of Appeal ruled. GST liability for sale of land is determined at date of settlement, being the date ‘supply’ occurs.
It was irrelevant for GST purposes that the deposit was paid by a related company when the contract was signed.
It was also irrelevant that the related company was signatory to the contract and later assigned its rights as purchaser to Takapuna Development as its nominated purchaser. The Goods and Services Act specifically provides that ‘supply’ of land in these instances is made on settlement to the purchaser’s nominee, regardless of who was the signatory and who paid the deposit.
Takapuna Development was entitled to recovery of the full GST input credit lost.
Dixon v. Takapuna Residence Development Ltd – High Court (27.03.23) & Court of Appeal (23.04.24)
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