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Falls Road – when GST is not just part of the purchase price

A recent HC decision has interesting implications for the payment of GST in property settlements that involve nominees.   In this case:

(a)    Fletcher agreed to sell land to the Hulls, who nominated Falls Road to complete the transaction.

(b)   The GST ($650k) was payable before settlement and so a GST invoice was issued by Fletcher and Falls Road paid the GST to Fletcher.

ST(c)    The contract did not settle so the supply needed to be unwound for GST purposes. The IRD repaid Fletcher and Falls Road was required to pay back the GST input tax credit claimed.

(d)   Fletcher refused to pay the GST amount back to Falls Road retaining it as equitable damages for Hulls failure to settle under the contract.

(e)    Falls Road obtained summary judgment for the GST amount.

Key points:

(1)   It was unjust for Fletcher to keep the $650k.  Its claim for damages was against the Hulls. (Fletcher had initially included Falls Road in proceedings, it discontinued such proceedings when it acknowledged it had no contractual or other basis to claim against Falls Road).

(2)   The High Court said there was no exceptional circumstance to justify lifting the corporate veil and treating the Hulls and Falls Road as the same entity.

Falls Road Properties Ltd v Fletcher (HC Whangarei CIV-2010-488-604, 30).

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