Dixon v Takapuna Residence Development Limited [2024] NZCA 129 (23 April 2024)

Last Updated: 29 April 2024

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

1. The appeal is dismissed.
2. The 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

• [1] 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]
• [2] 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 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.
• [4] 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]
• [5] 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 never going to, claim the GST input credits in respect of the deposits (Eden LP claimed the input credits).

(c) Takapuna RD is therefore in the same position as it would have been in if the warranty had been correct and has accordingly suffered no loss.

High Court judgment

• [6] Associate Judge Gardiner rejected this analysis and granted Takapuna RD’s application for summary judgment, finding that the Dixons had no arguable defence to the claim.^[5] The Judge considered that because Takapuna RD was the sole recipient of the supply, being the acquirer of the land, it was entitled to the input tax credit for the whole of the purchase price.^[6]
• [7] The Judge’s reasoning was as follows:^[7]

(a) GST liability is calculated under s 20(3) of the GST Act as output tax minus any input tax.

(b) Input tax is defined in s 3A(1) of the GST Act as tax charged under s 8(1) on a supply of goods or services acquired by the person.

(c) “Acquire” means to “obtain legal rights in the nature of proprietary rights”.^[8]

(d) Accordingly, only the person who becomes the legal owner of the goods (Takapuna RD) can claim the input tax credit.^[9]

(e) Therefore, in terms of the definition of input tax in s 3A(1), it is Takapuna RD that is entitled to the input tax credit for the deposits.

• [8] The Judge considered this reasoning was supported by s 60B(6) of the GST Act which provides that where land is supplied by the vendor to a nominee of the purchaser, the sale is treated as a single supply to the nominee. The existence of the original purchaser is ignored for GST purposes. This made sense because, in terms of s 20(3C) of the GST Act, input credits are available only to the extent that the goods are used for or made available for use in making taxable supplies. Only Takapuna RD will be using the property for this purpose, and it will be required to account for GST output tax when the land is eventually sold.^[10] It followed that Takapuna RD was entitled to the input tax credit in respect of the deposits, even though these were paid by Eden LP.^[11]
• [9] The Judge rejected the Dixons’ argument based on the requirement in s 20(3) of the GST Act that there has been a payment in respect of the supply during the relevant taxable period. The Judge considered this section is concerned with the calculation of the input tax credit available, not with eligibility to claim it. The section simply requires that there has been a payment in respect of the supply of secondhand goods during the taxable period in which the credit is claimed by the registered person.^[12] The Judge considered her conclusion was supported by settled authority including this Court’s decision in Ling v YL NZ Investment Ltd.^[13]

Submissions

• [10] Mr McCartney, for the Dixons, repeats the argument summarised at [5] above that was rejected by High Court. He maintains that Takapuna RD has suffered no loss and will not ever suffer a loss as a consequence of the breach of warranty. He says Takapuna RD never stood to lose what it had not claimed and was not going to claim. In short, the Dixons are not liable to Takapuna RD for input tax credits that Eden LP would have received if the warranty had been correct. Mr McCartney argues that the Judge’s reasoning was flawed, primarily because she conflated what Takapuna RD might have been entitled to do with what it actually did, which was to claim an input tax credit only on the balance of the purchase price it paid.
• [11] Although not essential to his argument as above, Mr McCartney submits that the Judge misinterpreted s 20(3) of the GST Act. He says that this provision contemplates input credits being available only to registered persons who have made a payment in respect of a supply in the relevant taxable period. He says the Judge also misinterpreted s 60B(6). He argues that although this provision treats the sale as a single supply to the nominee, it does not mean that the nominee is entitled to claim input tax credits for payments it has not made. In any event, he returns to his primary argument and says that irrespective of whether Takapuna RD might have been entitled to claim the input credits, it was never going to do so and has suffered no loss in respect of deposits it did not pay.
• [12] Mr McCartney submits that this Court’s decision in Ling does not assist because quantum was agreed in that case and did not include the input credit on the deposit paid by the named purchaser prior to the nomination. He distinguishes Park Homes Ltd v Miah for similar reasons, and Marr v Mills on the basis that the Mills as nominees intended to claim an input credit for the deposits and no other person had done so.^[14]
• [13] Ms Casey, for Takapuna RD, supports the Judge’s analysis and conclusion. She says the Dixons’ submissions ignore the fundamental premise of the GST regime, namely that GST is levied on supply, not payments, and the supply does not need to be to the person making payment in consideration for it.^[15] The relevance of the payment is that it sets the value of the supply on which GST is calculated. She says the reference in s 20(3) — “to the extent that a payment in respect of that supply has been made during that taxable period” — is consistent with the language of the GST Act generally and does not alter this general principle. It simply requires that the payment must be in respect of the supply during the taxable period. Registered persons have two years in which to claim an input credit. Therefore, if the deposit-payer does not claim the input credit in the period in which the payment is made or does not receive it (as here), a nominee purchaser may do so following settlement. This approach is consistent with s 60B(4), although that provision does not relate to the supply of land.

Assessment

• [14] Input tax is tax charged on a supply of goods or services acquired by a registered person. It is not a tax on payments. Input tax is relevantly defined in s 3A(1) of the GST Act as follows:

3A Meaning of input tax

(1) Input tax, in relation to a registered person, means—

(a) tax charged under section 8(1) on a supply of goods or services acquired by the person:

...

• [15] Section 8(1) imposes the tax on the supply of goods and services and prescribes that it is to be calculated by reference to the value of the supply:

8 Imposition of goods and services tax on supply

(1) Subject to this Act, a tax, to be known as goods and services tax, shall be charged in accordance with the provisions of this Act at the rate of 15% on the supply (but not including an exempt supply) in New Zealand of goods and services, on or after 1 October 1986, by a registered person in the course or furtherance of a taxable activity carried on by that person, by reference to the value of that supply.

• [16] Section 11(1)(mb) provides for zero-rating of the supply of land in certain circumstances (including the present):

11. Zero-rating of goods

(1) A supply of goods that is chargeable with tax under section 8 must be charged at the rate of 0% in the following situations:

...

(mb) the supply wholly or partly consists of land, being a supply—

(i) made by a registered person to another registered person who acquires the goods with the intention of using them for making taxable supplies; and

(ii) that is not a supply of land intended to be used as a principal place of residence of the recipient of the supply or a person associated with them under section 2A(1)(c); or

• [17] The calculation of the tax payable by a registered person in respect of each taxable period is set out in s 20 and allows for the deduction of input tax in relation to the supply of goods and services to that registered person during the taxable period. Section 20 relevantly reads:

20 Calculation of tax payable

(1) In respect of each taxable period every registered person shall calculate the amount of tax payable by that registered person in accordance with the provisions of this section.

...

(3) Subject to this section, in calculating the amount of tax payable in respect of each taxable period, there shall be deducted from the amount of output tax of a registered person attributable to the taxable period—

(a) in the case of a registered person who is required to account for tax payable on an invoice basis pursuant to section 19, the amount of the following:

(i) input tax in relation to the supply of goods and services (not being a supply of secondhand goods to which section 3A(1)(c) of the input tax definition applies), made to that registered person during that taxable period;

(ia) input tax in relation to the supply of secondhand goods to which section 3A(1)(c) of the input tax definition applies, to the extent that a payment in respect of that supply has been made during that taxable period:

...

• [18] We have not set out s 3A(1)(c) because it is not applicable.
• [19] Section 60B addresses supplies to nominees. Section 60B(6) provides that in the case of the supply of land, the supply is treated as having been made by the vendor to the nominee irrespective of who paid the consideration for the supply. It is helpful to set out the section in full:

60B Nominated recipients of supplies

(1) This section applies when a person (person A) enters into a contract to supply goods and services to another person (person B), and person B directs person A to provide the goods and services to a nominated person (person C) who is not party to the contract.

(2) If person B pays the full consideration for the supply, the supply is treated as a supply from person A to person B and the existence of person C is ignored.

(3) If person C pays the full consideration for the supply, the supply is treated as a supply from person A to person C and the existence of person B is ignored.

(4) If person B and person C each pay part of the consideration for the supply, the supply is treated as a supply from person A to person B. However, person B and person C may agree, recording their agreement in a document, that the supply is to be treated as a supply made to person C, but no such agreement can be made if person B has claimed input tax in relation to the supply.

(5) [Repealed]

(6) Despite subsections (2) to (4), for a supply that wholly or partly consists of land, the supply is treated as made by person A to person C.

(7) [inapplicable].

• [20] The correct GST treatment of the supply of land is determined at the date of settlement, being the date the supply occurs.^[16] This is why the warranty in the standard form agreement refers not only to the vendor’s GST status at the date of the agreement but extends to the critical position at the date of settlement.
• [21] The warranty was breached by the Dixons at the date of settlement. By then, Takapuna RD had acquired the right to enforce the warranty.^[17] The warranty imposes strict liability on the promisor (the Dixons) and became immediately enforceable as a promised benefit without the need for the promisee (the party entitled to enforce the promise — Takapuna RD) to prove reliance or loss.^[18]
• [22] For the purposes of the GST Act, the transaction must be treated as a single supply to Takapuna RD, in line with s 60B(6) of the GST Act. If the warranty had been correct at the date of settlement, Takapuna RD would have been entitled to obtain a GST input credit for the full amount of the purchase price in terms of s 20(3) of the GST Act. Eden LP’s attempt to claim an input credit for the deposits can be ignored because no such credit was allowed. The position at settlement is what matters (subject to any material change between then and the date the summary judgment application is filed).
• [23] It follows that at the date the proceedings were issued, Takapuna RD had an unanswerable claim against the Dixons for breach of warranty. The amount required to restore Takapuna RD to the position it would have been in had the warranty been correct includes the GST input credit it would have been entitled to claim on the whole of the purchase price, including the deposits. It is irrelevant that it did not pay the deposits. As noted, the tax is calculated on the value of the supply, irrespective of who supplied the consideration for it.
• [24] This is consistent with the decision in Park Homes Ltd. In that case, the agreement was entered into and the deposits were paid by Mr Wong. Park Homes was then nominated as the purchaser and paid the balance on settlement.^[19] No proof was required as to how the deposit was treated between related entities, and no argument was made that Park Homes was not entitled to claim a GST refund in respect of the deposits. This also appears to have been the case in Ling.^[20]
• [25] We agree with the Judge’s analysis and her conclusion. The appeal must be dismissed.

Result

• [26] The appeal is dismissed.
• [27] The appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Duncan King Law, Auckland for Appellants
Duthie Whyte, Auckland for Respondent

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^[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.

^[3] Eden GP Ltd was also formerly known as Eden Reits Ltd.

^[4] Goods and Services Tax Act 1985, s 11(1)(mb).

^[5] Takapuna Residence Development Ltd v Dixon [2023] NZHC 624 [High Court judgment] at [61].

^[6] At [44].

^[7] At [27]–[28].

^[8] Citing Case T35 (1997) 18 NZTC 8,235 at 8,240.

^[9] Citing Case R11 (1994) 16 NZTC 6,062.

^[10] High Court judgment, above n 5, at [28].

^[11] At [30].

^[12] At [31].

^[13] At [32]–[42]; and Ling v YL NZ Investment Ltd [2018] NZCA 133, (2018) 20 NZCPR 830. The Judge also cited Park Homes Ltd v Miah [2022] NZHC 1352.

^[14] Park Homes Ltd v Miah, above n 13; and Marr v Mills [2021] NZCA 505.

^[15] Citing Turakina Maori College Board of Trustees v Commissioner of Inland Revenue [1992] NZCA 589; (1992) 17 TRNZ 433 (CA).

^[16] Goods and Services Tax Act, s 11(8B).

^[17] Contract and Commercial Law Act 2017, ss 12 and 17. See also Laidlaw v Parsonage [2009] NZCA 291, [2010] 1 NZLR 286. We note that Eden LP and Eden GP Ltd supported Takapuna RD’s claim and were joined as plaintiffs in the High Court, but the Dixons have not included them as respondents to this appeal.

^[18] This was recently discussed by Cooke J in R (in right of New Zealand acting by and through Chief Executive of the Department of Corrections) v Fujitsu New Zealand Ltd [2023] NZHC 3598 at [123], citing John Cartwright Misrepresentation, Mistake and Non-disclosure (5th ed, Sweet & Maxwell, London, 2019) at [8–23]. Cartwright summarised the point as being: “[w]here the defendant has given in the contract a warranty that his statement was true, the breach of contract is established by simply showing that the statement was false. ... The claimant need not show that the defendant was fraudulent or negligent in making the statement, nor will the defendant be able to use evidence of his innocence to avoid liability. Nor, in order to establish breach of contract, is it necessary for the claimant to show that he relied on the statement and suffered loss. It is sufficient to show that the statement was a term of the contract and was broken. The obligation which the defendant has undertaken in the contract is strict; his liability flows from simple non-performance (that is, from his breach of promise that the statement was true)” (footnotes omitted).

^[19] Park Homes Ltd v Miah, above n 13, at [4]–[11].

^[20] The deposits were presumably paid by WHC Holding Ltd, the original purchaser, rather than by YL NZ Investment Ltd (YL) as the nominee, as they were due to be paid a number of months prior to YL being nominated: YL NZ Investment Ltd v Ling [2017] NZHC 1793 at [6]–[15]. We do however note for completeness that neither the High Court nor Court of Appeal judgments explicitly state that the deposits were paid by WHC Holding Ltd.