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Trustees liable to pay liquidators for company’s losses

This item has been adapted from an article written by Marilyn Hay

In the case of Rowmata Holdings Limited (in liq) v Hildred, the High Court has held that liquidators of a company were entitled to repayment of GST receipts from associated parties (two trusts) that had received them.


The matter arose from a sale and purchase agreement for the purchase of land where two trusts (the purchasers) did not have the financial ability to settle. Before settlement date a company incorporated by the purchasers claimed a GST refund from the purchase some of which it paid out to the trusts in settlement of debts. When the purchasers subsequently defaulted at settlement date, the GST refund became repayable to Inland Revenue but there were no funds held by the company to meet this liability. The company went into liquidation and the High Court agreed with the liquidators that they were entitled to recover the entire amounts claimed from the trustees of the trusts.

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Trust income from property transactions liable for income tax and GST

This item has been adapted from an article written by Marilyn Hay

A recent Taxation Review Authority (TRA) decision has held that amounts derived by a trust that bought and sold properties were income on the basis that the properties were acquired for the purpose of intention of sale. The TRA also held that the trust was in the business of erecting buildings and that the exemption for residential land did not apply in this case. In addition, the TRA found that the trust was deemed to be registered for GST. The trust was therefore liable for income tax and GST output tax on the sales of the properties. The TRA also found that the trust was grossly careless when taking its tax position and that shortfall penalties should be imposed for gross carelessness.

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Inclusive or exclusive of GST?

GST, is simple tax that can nevertheless prove difficult in practice.  While compulsory zero-rating will assist in some regard, there will always be transactions where it is necessary to draft special clauses to deal with GST.  Sometimes the clause will reflect the parties’ intentions and everyone will be happy.  Sometimes it won’t.

From the writer’s experience the difference between the outcomes depends in large part on an appreciation as to how the GST liability is calculated and how this is to work in relation to the terms exclusive and inclusive of GST (or plus GST (if any)) as relevant.

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Amendment to “Associated Persons” definition

Section YB 11 of the Income Tax Act 2007 has been amended, with general application from the 2010-11 income year (but with application from 6 October 2009 for some land provisions) to provide that a trustee is not associated with a person who has the power to add and remove trustees (the appointor) if the appointor only holds that power in a professional capacity.

When the Associated Person provisions in the Income Tax Act 2007 were amended in 2009 the rules became significantly more difficult to circumvent.  The amended definition including amongst other things a provision providing that  a trustee and an appointor are now associated persons (s YB 11).

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