A Week in Review
Partnership Act to get a makeover…
Presently under review by the Government, the Partnership Act 1908 which governs such things as the rights and obligations of partners to each other and to third parties, has had its draft Bill recently released, the aim of the new legislation being to make the rules which apply to a business partnership, clearer and easier for the public to understand.
The draft Bill can be read here – http://www.pco.govt.nz/assets/Uploads/legislative-documents/plb/exposure-draft-Partnership-Law-Bill.pdf
Should you wish to make a submission with respect to the Bill’s present drafting, the closing date is 15th June 2018.
Taxpayer loses summary judgement appeal…
I decided to report on this case again, because as potential advisors to client’s who may be selling land, it is important to fully consider any GST issues which may arise upon sale, particularly whether there is any perceived risk that a non-registered client may subsequently be deemed by IR to have had an obligation to be registered for GST for the purpose of the transaction.
This backdating of GST registration status by IR, could then result in the client breaching the GST warranties they may have provided in the agreement for sale and purchase, opening the door to a claim against them by an aggrieved GST registered purchaser.
You may recall my previous commentary on this case, which involved a non-registered vendor selling land on a GST inclusive basis to a GST registered purchaser, who clearly was under the impression that they would be able to make a second-hand goods claim with respect to the purchase, particularly on the basis that the vendor had warranted under clause 14.1 of the agreement, that she was not presently registered for GST for the purpose of the sale, and nor would she be so registered at settlement date.
Post settlement the purchaser lodged their second-hand goods claim. IR investigated the vendor’s registration status, determined she should in fact have been GST registered and backdated her registration status to a date preceding settlement date. As the transaction was now deemed to occur between two GST registered persons, it qualified for compulsory zero-rating and as a result IR disallowed the purchasers claim.
The purchaser then sued the vendor for their loss on the basis the vendor had breached the warranty she had given in clause 14.1, which the purchaser won, and they were then granted summary judgement for the debt by the High Court, which the vendor appealed and to which the present decision relates.
One of the primary grounds for relief claimed by the vendor, was that she had not breached the warranty clause, because she was not in fact actually GST registered at settlement date, and it was only as a result of post-settlement action by IR, that back-dated registration had been applied and the purchasers had found themselves in the situation they were now in.
However the High Court disagreed with this claim and allowed the summary judgement to stand. Importantly, the Judge found that it was for the Commissioner alone to determine the appropriate date of registration, and the fact the vendor may have erred in this regard, or that the Commissioner’s determination was made post settlement date was irrelevant.
Interestingly, it appears that the vendor did not challenge the Commissioner’s GST registration determination, with inference that she did not do so because she actually benefited in some way as a result of the backdating. To this end, the Court determined that since she was in fact liable to be GST registered at settlement date, she was in breach of the warranty and consequently she had no defence to the claim.
Richard Ashby BBus, CA, CPA PARTNER
Ph: +64 9 365 5532
Fx: +64 9 309 5260
Mb: +64 21 823 464