Edgewater distinguished: GST is not payable to the IRD before repayment of a mortgage where the sale is not a mortgagee sale

In this case1, the Court of Appeal distinguished the decision in Edgewater2 (referred to in the Winter 2003 issue of Financial Services Quarterly) on the basis that the sale in this case was made by the mortgagor, and not the mortgagee.

The director of a GST-registered company voluntarily sold a property for less than what was due under the mortgage and, between the sale becoming unconditional and settlement, the company went into liquidation.

The liquidators sought directions from the High Court as to whether they should retain the GST portion of the purchase price and pay it to the IRD or whether all net proceeds should be paid to the mortgagee with the liquidators to account for GST on the total inputs/outputs for the GST period in due course.

The High Court held that all proceeds of sale should be paid to the mortgagee, and the Court of Appeal dismissed the liquidators' appeal, deciding that:

• the GST liability arose prior to liquidation, and the liquidators had no personal responsibility for it under section 58 of the Goods and Services Tax Act 1985;
  
  
• there was no new replacement supply when the liquidators chose to complete the sale;
  
  
• the "GST sum" was a portion of the purchase price and not received as payment of GST; and
  
  
• there was no provision in the Goods and Services Tax Act that applied where there was no mortgagee sale. Instead, section 98(2) of the Property Law Act 1952 applied to allow deductions only for the expenses of sale before the proceeds are paid to the mortgagee.
  

1 Rob Mitchell Builder Limited (In Liquidation) v The National Bank of New Zealand Limited (Court of Appeal CA 16/03, 26 November 2003, Blanchard, Tipping and Anderson JJ)

2 CIR v Edgewater Motel [2003] NZLR 425

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