- The Taxpayer was a company that owned property with both residential and commercial leases.
- The Taxpayer was registered for GST from its date of incorporation on a payments basis.
- The Taxpayer entered into both a lease and a separate deed with a tenant.
- The deed required action to be taken by the Taxpayer in the form of alterations to the building, by a date specified in the deed.
- The deed contained a contractual obligation to indemnify the tenant for certain obligations incurred under the lease for a period of time.
- Failure to fulfil this obligation resulted in a payment to the tenant.
- The Taxpayer made a payment the amount of which equalled the rent and outgoings of the tenant under the lease for a specified period and claimed a deduction from output tax for GST on this payment.
- The Taxpayer was not entitled to claim a deduction from output tax for GST on the payment made to the tenant under the deed.
- The Taxpayer was not liable for a shortfall penalty for not taking reasonable care.
- CCS argued the Taxpayer was not entitled to a deduction from output tax for the GST on the payment because the deed did not alter the amount of rent and outgoings payable by the tenant under the lease.
- CCS argued the payment compensated the tenant for the loss associated with the Taxpayer’s failure to make the alterations to the building by the specified date and accordingly, there was no underlying supply of a good or service on which GST was charged.
- The Taxpayer argued the payment was a refund of rent and outgoings paid by the tenant under the lease and in respect of which it had accounted for GST output tax to the Commissioner.
- The Taxpayer argued it accounted for an incorrect amount of output tax on its supply of services to the tenant and was entitled to an adjustment for the excess output tax paid.
- The Taxpayer described the issue as being whether the payment was consideration for an earlier supply of services made by it to the tenant for which it could claim an input tax deduction.
- It was not disputed that there was taxable supply of the property by the Taxpayer to the tenant on which the Taxpayer had accounted for output tax.
- Neither CCS or the Taxpayer considered the payment was consideration for a supply of goods or services acquired by the Taxpayer from the tenant.
Source: taxtechnical.ird.govt.nz
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
