The importance of the GST treatment for the sale and purchase of land, particularly in respect of Auckland District Law Society agreements, cannot be understated.
The need for care and certainty continues to be highlighted with the Court of Appeal's recent approach to Market Valuations of property.
In a recent family dispute, the Court held that whether the current Market Value of a property includes GST must be determined by the context of the Deed.
The dispute centred around the distribution of Estate assets. In particular, one son (who had long resided in a property), was going to have property transferred to him personally (or through a nominee), at a GST exclusive value. He was not registered for GST. The other children disputed this, with another brother arguing for a GST inclusive value to be determined.
Submissions were made to the Court supporting each side. Relying on Case Law, the Court held that the correct Market Value of the property in this case was a GST exclusive value.
A clause in the Settlement Deed had expressly referred to the transfer of other Estate properties, holding that the four children would share equally in the cost of any tax payable. The Court also found that an entitlement to "Market Value" is exactly that, not "Market Value plus GST". Furthermore, there could not be two separate Market Values, to be determined by the GST status of the purchaser.
In assessing the contract, the Court found that there was no suggestion that the Property Valuer's' had failed in providing a correct Valuation of the property. Accordingly, the Valuation could not be challenged.
How could this affect you?
GST has long created difficulty for many New Zealander's. Recovery of GST amounts and potential penalties from the Inland Revenue Department mean that it is crucial to ensure your GST treatment is correct when valuing property or entering into any type of transaction. As the finding in this case explains, the outcome will vary depending on the context of each arrangement.
If you are contemplating or in the process of a major transaction, please consult us to ensure there are no unexpected tax costs.