In Simpson v Commissioner of Inland Revenue  NZCA 126 the Court of Appeal has allowed an appeal against the decision of the High Court ( NZHC 490) that receivers of a mortgagee who sold the mortgagor’s real property were “personally liable” for the GST. However, the Court nevertheless ordered that the receivers pay the GST to the Commissioner (in preference to the secured creditor of the mortgagee) as the GST properly represented a cost of the sale of the property.
In this case, which has unusual facts, the mortgagee was a finance company which was not registered for GST. The mortgagee went into receivership and after the receivers were appointed, a mortgagor defaulted on its loans which the mortgagee then sold. The receivers accepted that the mortgagee was liable for the payment of GST in respect of the sale of the properties (in Australia, a mortgagee would be liable for the GST pursuant to Division 105 of the GST Act). However, the receivers argued that because the mortgagee was in receivership and was unable to meet its debts, the Commissioner was an unsecured creditor and the receivers must first account to the secured creditor of the mortgagee for the amounts received as GST.
On appeal, the Court approached the matter on the basis that the authorities had established that a selling mortgagee is obliged to pay the GST charged on the supply of land in priority to any payment in respect of secured debts. Further, the Court found that this was not altered by the appointment of receivers. In doing so, the Court found that there was no policy in the GST Act of protecting secured creditors and that, far from being an unsecured creditor, the Commissioner is in a better position that secured creditors with respect to GST. The Court also found that the GST simply did not reach the general funds of the mortgagee as it was a cost of the sale of the property. Finally, while the Court found that the receivers did not have any personal liability to pay the GST, that did not mean that they were entitled to keep the GST and pass it on to the secured creditor. As noted by the Court “The corollary of the receivers having no liability for CMI’s debts is that as agents they cannot have a greater claim to the proceeds of sale than CMI itself“.
In finding that the receivers did not have personal liability, the Court found that the provisions making receivers liable for GST on sales made by a company during a receivership (similar to s 58 under our GST Act) did not apply to a mortgagee sale. Similar considerations should apply under our GST Act. The Court also found that the High Court’s finding that the receivers were personally liable for GST was contrary to the clear wording of the legislation,which limited the liability for GST to the entity exercising the power of sale (in this case the mortgagee). As noted by the Court, “The receivers may have been in actual control of the sale, but they could only conduct the sales by exercising the powers of CMI on its behalf, as its agents.” Again, similar considerations should apply under Division 105 of our GST Act as the provision is arguably limited to the entity which makes the supply of the other entity.