Waikato Business News September/October 2017

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52 WAIKATO BUSINESS NEWS September/October 2017 GST and property transactions Deciding whether to buy or sell a property is the biggest financial decision many people make, so overlooking the GST implications of property transactions can be an expensive mistake. When entering into a property transaction, both purchaser and vendor need to consider whether or not they should be registered for GST in respect of the transaction. Determining this ultimately comes down to whether the person is completing the transaction in the course or furtherance of a “taxable activity”. The GST Act defines a “taxable activity” as any activity which is carried on continuously or regularly and involves, or is intended to involve, the supply of goods and services to another person for a consideration. Importantly, the activity does not have to be carried on for the purpose of making a profit, hence a person could be carrying on a “taxable activity” for GST purposes even though the activity would not constitute a “business” in the ordinary sense. In relation to property transactions, the concept of a “taxable activity” is particularly relevant where the property is purchased and re-sold in a short period of time, especially if subdivision or development work is involved. The landmark case on what amounts to a “taxable activity” in relation to property is the Court of Appeal’s decision in Newman v C of IR. Newman was a GST registered builder who completed a one-off subdivision involving splitting a single section into two, including some electrical and drainage work. The IRD ruled that the subdivision and subsequent sale of the property was a “taxable activity” and assessed Newman for GST on the sale. The case ended up going all the way to the Court of Appeal and the Court overturned the IRD’s assessment, ruling that the subdivision could not be regarded as a continuous or regular activity and therefore Newman was not carrying on a “taxable activity” in respect of the property. In their judgment, the Court of Appeal took an overall view of the activity to determine that it was not repeated continuously or regularly, i.e. it was a one-off. The minimal development work was also considered relevant. The IRD were forced to change their stance as a result of the Newman decision, releasing a policy statement expressing the view that a subdivision of land into two, involving no development work, will not by itself amount to a “taxable activity”. Although the statement did note that a “taxable activity” would be more likely to arise if a greater number of lots were created, the development work was more extensive, or there was a greater commitment of time and money to the project. Despite the established principles, there appears to be a muddying of the waters in recent times as to the meaning of “taxable activity”. The IRD are now increasingly challenging the GST status of un-registered vendors when the purchaser makes a second-hand goods GST claim in respect of the property purchase. A second-hand goods GST claim is generally available when a GST registered purchaser buys from an un-registered vendor. In some cases it appears the IRD are alleging a “taxable activity” exists in simple buy and sell transactions within a short time frame. Conversely, we sometimes see situations in which the IRD will seek to deny GST refunds on the basis that the taxpayer does not conduct a “taxable activity”. The confusion around what comprises a “taxable activity” was recently exacerbated by the High Court in the recent case of YL NZ Investments v Louise Ling. The case involved a GST registered purchaser successfully claiming a breach of warranty by the vendor, as the vendor had warranted in the sale agreement that she was not GST registered. But she was retrospectively registered by the IRD after the transaction was completed. While not directly relevant to the issue in the case, the Judge expressed the view that the vendor was “clearly carrying on a taxable activity” when she had merely bought and sold a property in a short period of time. The comment directly contradicts both the Newman principle and IRD’s policy, under which a one-off buy and sell transaction is not enough for a “taxable activity” to arise. The IRD’s basis for deciding the vendor had a “taxable activity” is not known, although hopefully they considered more than the fact the property was bought and sold in quick succession. The YL NZ Investments case also highlights the onus on vendors to ensure they correctly state their GST status on the sale and purchase agreement, or include an ap- TAXATION AND THE LAW > BY HAYDEN FARROW Hayden Farrow is a PwC Executive Director based in the Waikato office. Email: hayden.d.farrow@nz.pwc.com Checking your IT provider’s credentials propriate contractual remedy in the event that their GST status is overturned by the IRD. To avoid an unexpected GST bill or lawsuit, vendors and purchasers should be fully aware of the GST implications of every property transaction they enter into and take steps to ensure they are appropriately protected in the event their GST status is challenged by TECH TALK > BY DAVID HALLETT David Hallett is a director of Hamilton software specialist Company-X, design house E9 and chief nerd at Waikato Need a Nerd. Is your IT provider a member of IT Professionals New Zealand? ITPNZ, as it is known, is the IT professional body in New Zealand. Membership requires individuals to sign up to a Code of Professional Conduct, and provides them with access to a Professional Knowledge Curriculum designed to upskill them. Using a member of the institute for your IT needs ensures that your IT provider is required to act professionally and ethically, and is also a professional who will be judged by their peers if they do the wrong thing by their client. The institute is a community of IT professionals who care deeply about professional practice in IT. The institute helps develop its members, sets standards and recognises those IT professionals in New Zealand who aspire to excellence, and works as the voice of the IT profession to government and others. The code ensures IT Professionals NZ members provide the best possible service to their clients, regardless of their specialisation. Complaints against ITPNZ members are referred to the institute’s Professional Conduct Board which will investigate the complaint through a hearing. If the IT professional is found to have committed a breach of the code a penalty will be handed down by the board. If the hearing uncovers significant criminal or civil wrongdoing the IT Professionals NZ National Council may refer the matter to police through a formal complaint, or start other legal proceedings. Things change very quickly in the technology space, and the institute has acknowledged that by forming the Professional Practice Working Group. The new working group is reviewing the code and curriculum, and will make recommendations on other professional practice guidelines that could be added. We, at Company-X are primarily engaged in software development for a range of clients big and small. Mostly, we start new projects from scratch, but sometimes we inherit projects from new clients, after they have had a sub-optimal experience with another software developer, often based overseas. This is one of the reasons IRD. The comments in this article of a general nature and should not be relied on for specific cases. Taxpayers should seek specific advice. we believe that this institute led review is such important work. This is not just a company sentiment, but we have actioned our commitment by freeing up staff who were selected to participate in the review. One of them recently flew down to Wellington for the day, as part of the review process, and there will be more trips as the project continues. Next time you get someone in to meet your IT needs, check to see if they are a member of the Institute of IT Professionals. Disclaimer: David Hallett is chair of the Hamilton branch of the Institute of IT Professionals. 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CHRISTMAS EVENTS AND VENUES WAIKATO BUSINESS NEWS September/October 2017 53 Hampton Downs – a function centre with a difference The new Hampton Downs International Motorsport Park offers unique corporate event opportunities for Christmas functions and world class functions and conferences. After a $30 million upgrade the motorsport track and entertainment facility, close to both Hamilton and Auckland, was relaunched last October in grand style with a major motorsport event, headlined by the Australian GT series. While it will remain the home of motorsport and car manufacturer events, the venue has been purposely set up to cater for corporate functions and conferences. There are 11 function suites which cater to all group sizes. From the small, modern meeting rooms located above the pit garages which can seat between 10 and 200 guests, to the Pavilion which can seat up to 400 banquet style, we have rooms to suit all! Hampton Downs’s accommodation offerings are extensive with our affordable fourstar apartments available to both corporate and private bookings. Each self-contained accommodation unit boasts two bedrooms, bathroom, kitchen, living room, laundry and trackside balcony – all of which open onto panoramic views of the motorsport park and the Bombay Hills. Each apartment has its own allocated parking area while additional parking is available just outside of the apartment complex. Our apartments are conveniently located between Auckland and Hamilton. We are located in the North Waikato near Huntly, Mercer and South Auckland. Furthermore, Auckland Airport is only a short distance away. If you are looking for an exciting and unique venue for your key client event, staff function or conference look no further. Simply call our Corporate Sales & Events Manager, Lucy Goody on 027 549 1213 or email events@hamptondowns. com A Unique World Class Facility Have an adrenaline fuelled CHristmas at Hampton downs motorsport park and event Centre! Christmas functions from $ 135 .00pp* + GST Enjoy 2 high speed laps in the Lexus Safety Car 2 x 10 minute fastest lap sessions on the go kart track Round up your day with a sumptuous BBQ and drinks overlooking the park For further information or to make an enquiry, please contact Lucy Goody +64 27 549 1213, events@hamptondowns.com *Prices from $135 + GST for up to 80pax. Groups above this size are POA. Minimum 10pax
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Waikato Business News September/October 2017

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