Dixon v Takapuna Residence Development Limited - [2024] NZCA 129

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA211/2023
[2024] NZCA 129

BETWEEN	PETER ANDREW DIXON AND MARGARET JOAN DIXON Appellants
AND	TAKAPUNA RESIDENCE DEVELOPMENT LIMITED Respondent

Hearing:	14 March 2024
Court:	Gilbert, Whata and Churchman JJ
Counsel:	W A McCartney for Appellants A J Casey for Respondent
Judgment:	23 April 2024 at 3 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

Introduction

In October 2019, Mr and Mrs Dixon entered in an agreement as vendors to sell a property in Takapuna, Auckland for $2.5 million inclusive of GST.[1] They warranted that they were not registered under the Goods and Services Tax Act 1985 (the GST Act) and would not be so registered at settlement. However, they were in fact registered for GST.[2]
[1]The agreement was in the standard form Agreement for Sale and Purchase of Real Estate approved by the Real Estate Institute of New Zealand Inc and Auckland District Law Society Inc (Ninth Edition 2012 (8)).
[2]Mr and Mrs Dixon say they told the real estate agent that they were registered for GST and did not realise that the agreement contained a warranty stating they were not. However, whether or not this is correct is irrelevant for present purposes.
Takapuna Residence Development Ltd (Takapuna RD) is the nominee of the named purchaser under the agreement, Eden GP Ltd.[3] Takapuna RD is a wholly owned subsidiary of Eden Development No.1 LP (Eden LP), a limited partnership whose general partner is Eden GP Ltd. The property was acquired for development purposes.
[3]Eden GP Ltd was also formerly known as Eden Reits Ltd.
Eden LP paid the deposits totalling $550,000 between November 2019 and November 2020, prior to Takapuna RD being nominated as purchaser on 20 April 2021 and settling the purchase two days later.
The breach of warranty came to light on 4 October 2021, following settlement. Inland Revenue disallowed Eden LP’s claims for GST input credits in respect of the deposit payments ($550,000) and Takapuna RD’s claim for an input credit on the balance of the purchase price ($1,950,000) because the Dixons were in fact registered for GST. The supply of land was from one registered person to another registered person and was therefore zero-rated for the purposes of the GST Act.[4]
[4]Goods and Services Tax Act 1985, s 11(1)(mb).
Mr and Mrs Dixon have accepted liability to Takapuna RD in respect of the GST input credit that would have been claimable (had the warranty been correct) on the balance of the purchase price which Takapuna RD paid on settlement ($1,950,000). However, they dispute liability to pay compensation for the GST input credits that would otherwise have been claimable on the deposits ($550,000) because:
(a)Takapuna RD did not pay the deposits (these were paid by Eden LP).
(b)Takapuna RD did not, and was…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2024] NZCA 129
Decision Date: 23 April 2024 at 3 pm

CaseChat Overview and Summary

In the case of Dixon v Takapuna Residence Development Limited, the Court of Appeal of New Zealand was asked to determine whether the Dixons, the vendors of a property, were liable to compensate Takapuna Residence Development Ltd for GST input credits that could have been claimed on the deposits paid for the property, despite these deposits not being paid by Takapuna RD. The Dixons argued that since the deposits were paid by another entity, and Takapuna RD never intended to claim the input credits on those deposits, there was no loss to compensate. The central legal issues revolved around the interpretation of the Goods and Services Tax Act 1985 and the applicability of input tax credits in the context of nominee purchases of real estate.

The Court of Appeal found that under the GST Act, the input tax credit is determined by the value of the supply, not the payment made. Since Takapuna RD was the sole recipient of the supply of the land, it was entitled to the input tax credit for the entire purchase price, including the deposits. The Court upheld the Judge's reasoning that the supply of land is treated as a single supply to the nominee under s 60B(6) of the GST Act, and the nominee is entitled to the input tax credit irrespective of who made the payments. This interpretation aligns with the principle that GST is levied on the supply of goods or services, not on the payments made. The Court of Appeal concluded that the Dixons were liable to compensate Takapuna RD for the full amount of the input tax credit that would have been claimable on the entire purchase price.

The appeal was dismissed, and the Dixons were ordered to pay costs to Takapuna RD for the appeal on a band A basis and usual disbursements. The Court's decision reinforces the principle that in transactions involving nominee purchases, the entitlement to input tax credits is determined by the value of the supply at the time of settlement, regardless of who makes the payment.

Orders