LEWIS GAIRE HERDMAN THOMPSON V THE COMMISSIONER OF INLAND REVENUE COA CA580/2009

LEWIS GAIRE HERDMAN THOMPSON V THE COMMISSIONER OF INLAND REVENUE COA CA580/2009 [5 April 2011]IN THE COURT OF APPEAL OF NEW ZEALANDCA580/2009[2011] NZCA 132BETWEEN LEWIS GAIRE HERDMAN THOMPSONAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 27 October 2010Court: O'Regan P, Hammond and Arnold JJCounsel: G D Pearson and J K Scragg for AppellantA C Beck and K I S Naik-Leong for RespondentJudgment: 5 April 2011 at 10.30 amJUDGMENT OF THE COURTA The appellant's appeal is dismissed.B The respondent's appeal is allowed in part. We quash the decision of the High Court to disallow the assessment made in January 2005 in respect of the GST return period from 1 August 2000 to 31 January 2001. We uphold that assessment. In all other respects the cross-appeal is dismissed.C We award to the respondent 75 per cent of costs for a standard appeal on a band A basis and 75 per cent of usual disbursements. We certify for two counsel._______________________________________________________________REASONS OF THE COURT(Given by O'Regan P)Table of ContentsPara NoIntroduction [1]The issues [2]Factual background [5]Application to deregister [6]The relevant properties [11]Professional advice [13]The three land sales transactions [15]The assessments [16]Statutory provisions [17]The Lopas decision [23]The Horsbrugh sale [29]The first Armagh sale [36]The second Armagh sale [42]Cost price assessment [61]Output tax credits [62]Tax avoidance [66]Penalties [67]Result [70]Costs [74]Introduction[1] This appeal and cross-appeal concern the liability of the appellant, Mr Thompson, for goods and services tax (GST). The focus of the litigation is on three sales of land effected by Mr Thompson, which he says occurred after he had deregistered as a registered person for GST purposes and should therefore not betaxable supplies. The Commissioner of Inland Revenue (the Commissioner) assessed Mr Thompson for GST on the supplies.The issues[2] The dispute centres on the date of deregistration. Mr Thompson deregistered with effect from 30 November 1999, before any of the land sales occurred. The Commissioner argues that the actual date of deregistration was 31 January 2001, and that all three land sales were therefore taxable supplies. We will deal with each land sale separately, because different considerations arise in respect of them.[3] The parties were agreed that the relevant provisions of the Goods and Services Tax Act 1985 (GST Act) have been the subject of a definitive interpretation by this Court in Lopas v Commissioner of Inland Revenue.1 An application for leave to appeal from this decision to the Supreme Court was dismissed.2 The nature of the exercise in the present appeal is, therefore, applying the law as stated in Lopas to the facts of the present case.[4] Before dealing with the three transactions, we will summarise the factual background, the legislative scheme and the Lopas decision.Factual background[5] The land sales in issue in the present case involve sales of parcels of a block of land owned by Mr Thompson near Rolleston. He purchased this in 1979, before the advent of GST, and had not therefore obtained the benefit of an input tax credit.Application to deregister[6] In 1999, Mr Thompson decided to deregister for GST purposes. In order to initiate that process, Mr Thompson completed an IRD form requesting deregistration1 Lopas v Commissioner of Inland Revenue [2006] 22 NZTC 19,726 (CA).2 Lopas v Commissioner of Inland Revenue [2006] NZSC 56, (2006) 18 PRNZ 385.with effect from 30 November 1999. The form required the applicant to select from one of the two following statements setting out the basis for the request to deregister:"I have ceased all GST taxable activities"; or"I am conducting a taxable activity but my turnover for the next 12 months will be under $30,000".[7] Mr Thompson selected the second of these. He specified on the form that he had sold the business as a going concern to Rutherford Mews Ltd for $35,000 (henoted on the form that this was for "property management and maintenance").[8] In response to the question on the form "If you have ceased all business activities did you sell any business assets at that time?", Mr Thompson did not selecteither the "Yes" or "No" box, but wrote "N/A".[9] In response to the question "Will you be keeping any of the business assets when your registration ceases?", Mr Thompson selected "Yes" and then specified asfollows:Asset Lesser of cost orOpen market valueFarm Railway Road Rolleston Canterbury $280,000*Property at Atawhai Nelson 12,000*Addition to farm – Double Garage 4,500" to Atawhai – two farm sheds 18,500* Purchased prior to G.S.T. being introduced[10] On 22 December 1999, the Inland Revenue Department (IRD) Nelson office sent Mr Thompson a standard form notification of cancellation of his GST registration with effect from 30 November 1999.The relevant properties[11] The farm at Rolleston had been acquired by Mr Thompson in 1979 and he had conducted the business of leasing that property. He also leased out the Atawhaiproperty which comprised two residential cottages and a commercial yard near to Mr Thompson's home in Nelson.[12] In 1997 an area of about one hectare including a house had been subdivided from the Rolleston property and sold. The balance of the property was then split into two further new titles, one comprising about 15 hectares of industrial land and one comprising about 186 hectares of farming land.Professional advice[13] Prior to applying for deregistration, Mr Thompson had received professional advice. He was told that if he deregistered before the sale of the land that was the subject of his leasing business, he would be obliged to pay to the Commissioner one- ninth of the original cost of the land, whereas if he sold the land prior to deregistration, GST would be assessed on the current market value. (There was a considerable difference between cost price and market value in this case.) He was told that, if he deregistered prior to the sale of the land, and then subsequently sold the land to an associated entity, a full GST input could be claimed by the entity and no GST would be payable by Mr Thompson because he would not be registered forGST. The advisers recommended that there should be "a period of time (say at least three months)" between deregistration and the sale of land to an associated entity "todemonstrate a clear break between the supply (sale) of the land and Mr Thompson's previous taxable supplies while registered for GST".[14] Mr Thompson acted in accordance with this advice.The three land sales transactions[15] As noted earlier, it is necessary to consider three separate sales of land effected by Mr Thompson after 30 November 1999. These were:(a) The sale of about 49 hectares (subdivided from the larger block of the Rolleston farm) to interests associated with a Mr Horsbrugh. Aconditional contract was completed by the parties on 3 December 1999 and signed on 8 December 1999. The condition requiring the subdivision of the relevant parcel was satisfied subsequently and the deposit was paid in February 2000. Settlement occurred in June 2000. We will call this the Horsbrugh sale.(b) The second was a sale by Mr Thompson to a family company Armagh Investments Ltd (Armagh). The agreement relating to the sale was signed on 31 March 2000. It related to the smaller, 15 hectare parcel of the Rolleston land which was zoned industrial. Armagh became liable for rates and insurance from 1 April 2000 and was granted the right to undertake subdivision and sale of the property from 31 March 2000. The purchase price was reflected in an acknowledgement of debt which applied from the sale date but was documented later, in September 2000. We will call this the first Armagh sale.(c) The third involved the sale of the remaining area in the larger title of the Rolleston farm (about 138 hectares) to Armagh on 29 September 2000 for a consideration of $2 million. Again, payment was effected by an acknowledgement of debt. We will call this the second Armagh sale.The assessments[16] The assessments that are under challenge in these proceedings are:(a) An assessment (notified to Mr Thompson in a letter dated 5 August 2004), which assesses the GST said to be payable in respect of the first and second sales. This relates to the period from 1 February 2000 to 31 July 2000;(b) An assessment (notified to Mr Thompson in a letter dated 26 January 2005), which assesses the GST said to be payable in respect of thethird sale. This relates to the period from 1 August 2000 to 31 January 2001.Statutory provisions[17] The obligation to pay GST in respect of supplies made in the course of business falls on those who are registered persons under the Act. Section 51(1) defines those persons who are liable to register under the GST Act. It provides:51 Persons making supplies in course of taxable activity to be registered(1) Subject to this Act, every person who, on or after the 1st day of October 1986, carries on any taxable activity and is not registered, becomes liable to be registered—(a) At the end of any month where the total value of supplies made in New Zealand in that month and the 11 months immediately preceding that month in the course of carrying on all taxable activities has exceeded $30,000 (or such larger amount as the Governor-General may, from time to time, by Order in Council declare):Provided that a person does not become liable to be registered by virtue of this paragraph where the Commissioner is satisfied that the value of those supplies in the period of 12 months beginning on the day after the last day of the period referred to in the said paragraph will not exceed that amount:(b) At the commencement of any month where there are reasonable grounds for believing that the total value of the supplies to be made in New Zealand in that month and the 11 months immediately following that month will exceed the amount specified in paragraph (a) of this section:Provided that any such person shall not become liable where the Commissioner is satisfied that that value will exceed that amount in that period solely as a consequence of—(c) Any cessation of, or any substantial and permanent reduction in the size or scale of, any taxable activity carried on by that person; or(d) The replacement of any plant or other capital asset used in any taxable activity carried on by that person...[18] Section 52 stipulates when a taxpayer is no longer liable to be registered for GST purposes. It provides as follows:52 Cancellation of registration(1) Subject to this Act, every registered person who carries on any taxable activity shall cease to be liable to be registered where at any time theCommissioner is satisfied that the value of that person's taxable supplies in the period of 12 months then beginning will be not more than the amount specified for the purposes of section 51(1) of this Act.(2) Every person who, by virtue of subsection (1) of this section, ceases to be liable to be registered may request the Commissioner in writing to cancelthat person's registration, and if the Commissioner is at any time satisfied, asmentioned in subsection (1) of this section, the Commissioner shall cancelthat person's registration with effect from the last day of the taxable period during which the Commissioner was so satisfied, or from such other date as may be determined by the Commissioner, and shall notify that person of the date on which the cancellation of the registration takes effect.(3) Every registered person who ceases to carry on all taxable activities shall notify the Commissioner of that fact within 21 days of the date of cessation and the Commissioner shall cancel the registration of any such person with effect from the last day of the taxable period during which all such taxable activities ceased, or from such other date as may be determined by the Commissioner:Provided that the Commissioner shall not at any time cancel the registration of any such registered person if there are reasonable grounds for believing that the registered person will carry on any taxable activity at any time within 12 months from that date of cessation. ...[19] When registered persons deregister, they must pay output tax on any assets relating to the taxable activity which are still held at the point of deregistration. This is because s 5(3) of the GST Act creates a deemed supply of those assets at a time immediately before that person ceases to be a registered person. Section 5(3) definesthe meaning of the term "supply" as follows:5 Meaning of term "supply"—...(3) For the purposes of this Act, where a person ceases to be a registered person, any goods and services then forming part of the assets of a taxable activity carried on by that person shall be deemed to be supplied by that person in the course of that taxable activity at a time immediately before that person ceases to be a registered person, unless the taxable activity is carried on by another person who, pursuant to section 58 of this Act, is deemed to be a registered person.[20] At the relevant time, the GST Act allowed taxpayers to elect to pay output tax on the basis of either cost price or market value at the point of deregistration. Section 10(8) provided as follows:10 Value of supply of goods and services—...(8) Where goods and services are deemed to be supplied by a person under section 5(3) or section 21(1) of this Act, the consideration in money for that supply shall be deemed to be the lesser of—(a) The cost of those goods and services to the supplier, including any input tax deduction claimed in respect of the supply of those goods and services to that supplier:(b) The open market value of that supply.[21] Following a 1997 review, Parliament amended s 10(8) in 2000 to ensure market value was the sole valuation criteria applying to deregistation. The matterwas discussed in the Commissioner's Tax Information Bulletin,3 which explained the reason for the amendment in the following way:4Registered persons may apply to deregister if their taxable activity ceases or the value of their taxable supplies falls below the registration threshold. Any goods and services forming part of the assets on hand at the time of deregistration are deemed to be supplied as part of the taxable activity.GST was previously payable on the lesser of the cost or open market value of assets held by the registered person immediately before opting out of the GST base. However, this created an anomaly between assets sold immediately before deregistration and assets sold after deregistration. If the person values the assets held at deregistration at cost, a lower GST liability arises in relation to assets that have appreciated in value. Therefore, GST must now be paid on the basis of the market value of goods and services retained on deregistration.Goods and services retained at the time of deregistration that were acquired before 1 October 1986, the date GST first came into effect, will continue to be valued at the lower of cost or open market value.[22] Also pertinent to this case is s 6(2), which reads as follows:3 IRD Tax Information Bulletin Vol 12, No 12, December 2000.4 At 5–6.6 Meaning of term "taxable activity"—...(2) Anything done in connection with the commencement or termination of a taxable activity shall be deemed to be carried out in the course or furtherance of that taxable activity.The Lopas decision[23] The Lopas decision dealt with taxpayers who claimed to be about to cease to carry on taxable activities. Section 52(3) applies to that situation. That is in contrast to the present case where the basis of deregistration was that the value of the taxable supplies of Mr Thompson in the 12 month period beginning from the date of deregistration would not be more than the amount specified for the purposes of s 51(1) of the GST Act. Section 52(1) therefore applies in this case.[24] In Lopas, this Court determined that the reference in s 52(1) to "the amount specified for the purposes of s 51(1)" referred to the amount specified in s 51(1)(a),namely $30,000. The exclusions in the provisos to the sub-paragraphs of s 51(1) did not apply. Based on that interpretation, which was not disputed in the present case, it was common ground before us that Mr Thompson was entitled to deregister at 30 November 1999 only if there was a proper basis for the Commissioner to be satisfied that the value of his taxable supplies in the ensuing 12 months would be not be more than $30,000.[25] Mr Thompson's acceptance of the statement in the IRD deregistration form: "I am conducting a taxable activity but my turnover for the next 12 months will be under $30,000" was obviously intended to provide the Commissioner with thatproper basis for concluding that Mr Thompson's taxable supplies in the following12 months would not exceed that amount. It is perhaps unfortunate that the term"turnover" was used in the form, rather than the statutory term "taxable supplies". Itcan be argued that turnover is reflective of recurring business and does not includeone of items such as sale of capital assets, whereas "taxable supplies" does not carrythat connotation. Nevertheless, the relevant formulation for present purposes is thatcontained in the Act, so the case needs to be determined by reference to Mr Thompson's compliance (or otherwise) with the s 52(1) test.[26] The Court made it clear in Lopas that the test in s 52(1) dealt with all taxable supplies and did not exclude any sales of the capital assets used in the running of the business which occurred as a result of the cessation or winding down of the business operation to bring it within s 52(1) or s 52(3). The Court said:5Those de-registering are, on the other hand, already in the GST net and are seeking to be removed from it. In such circumstances, there is no compelling reason to exclude any taxable supplies from the calculation that are in contemplation in the period after de-registration from the threshold calculation. Absent de-registration, such supplies (including those dealt with in s 6(2) of the GST Act) would be subject to GST.[27] In Lopas, the taxable activity of the taxpayers was forestry. They applied for cancellation of their GST registration on 4 October 1999 (the cancellation was to be effective from 30 September 1999). In the application form, it was stated that the taxpayers would keep land valued at $115,000 inclusive of GST ($115,000 was the cost price of the land). The taxpayers' registration was cancelled with effect from30 September 1999. On 8 October 1999, the taxpayers entered into an agreement to sell the land for $375,000, which a valuer had assessed as the market value.[28] The Court found that the impending sale of the property for $375,000 meant that the anticipated taxable supplies in the ensuing 12 months exceeded $30,000 and the Commissioner was therefore right to cancel the deregistration and treat the sale as having occurred while the taxpayers were registered persons. As noted earlier, the Court said there was no compelling reason to exclude any taxable supplies from the calculation that are in contemplation in the period after deregistration from the threshold calculation.6 Later, the Court said:7In this case, the sale to the Trust's Partnership was planned at the time of theapplication for de-registration. Indeed, major steps had been taken by the parties in relation to the sale, even if beneficial ownership had not passed. It is an available inference, from the timing of the entry into the sale agreement on 8 [October] 1999, that the consummation of the sale was merely awaiting the de-registration. This means, in terms of the analysis above, that the level5 At [49].6 At [49].7 At [52].of taxable supplies in the 12 months following 30 September 1999 was clearly going to exceed the threshold.The Horsbrugh sale[29] In his judgment, Dobson J set out the extensive background leading up to the Horsbrugh sale. It is not necessary for us to recount that here. Counsel for the appellant, Mr Pearson, was content to accept the Judge's factual determination,which we reproduce below:8By 26 November 1999, an agreement on all the terms eventually agreed to, with one exception, was signed by Mr Horsbrugh. Thereafter, Mr Thompson proposed a reduction in the time allowed for the purchaser to obtain finance. This was accepted, and I find that both parties had signed by about 3 December, with the agent endorsing the date of 6 December 1999 (subsequently altered to 8 December 1999). The price was $461,500 including GST. The agreement was subject to the purchaser arranging satisfactory finance within five days, and was also subject to the purchaser, in consultation with the vendor, being able to obtain resource consent for the proposed subdivision. Thereafter there were certain issues as between Mr Horsbrugh and Mr Thompson, and also issues in relation to completion of easements and such matters. A deposit was paid on 8 February 2000 andon 7 June 2000 a settlement statement was despatched by Mr Thompson's solicitors for settlement on 16 June 2000.[30] Mr Pearson accepted that, on the date on which deregistration was to take effect, there was an offer from Mr Horsbrugh which Mr Thompson was minded to accept. However, there were also conditions which had to be fulfilled, and it was only after this had occurred, in February 2000, that the deposit was paid. Mr Pearson (realistically) did not strongly contend that this sale could be distinguished from the situation before the Court in Lopas. His argument was that the conditionality of the sale meant that the present situation was not as immediate or certain as the situation in Lopas.[31] That may be so, but it is untenable to suggest that the sale was not, to use the words employed by Glazebrook J in Lopas, "contemplated" or "planned". Inaddition, since a taxable supply of more than $400,000 was about to occur, there wasno proper basis for the Commissioner to be satisfied that Mr Thompson's taxablesupplies in the 12 month period after 30 November 1999 would be less than $30,000.8 At [66].[32] Lopas identified two conditions that must be met before the Commissioner could be satisfied under s 52(1) that deregistration was appropriate. It must be the case that no sale is planned as at the date of deregistration (or at least not a sale that would mean the $30,000 threshold was exceeded) and the taxable supplies must otherwise be less than $30,000 in the next 12 months.9 Mr Pearson's argumentsfocused on whether a sale was planned as at the date of deregistration.[33] However, Mr Pearson did not deal with the other condition: that if no sale proceeded, the taxable supplies would have to be less than $30,000. In fact, Mr Thompson continued to receive rent at a rate of nearly $3,000 per month, although he later attempted to reallocate these rent payments to another company. Dobson J found that that attempt failed.10 That finding was not challenged on appeal. He found that the base rental payable by the lessee was sufficient to make the value of taxable supplies by Mr Thompson exceed the $30,000 level and, if necessary, would have included in this assessment the amount of rates on the property for which the lessee was liable.11 Thus Mr Thompson could not meet the requirement for deregistration that the value of his taxable supplies in the ensuing year would not exceed $30,000 in the event that the Horsbrugh sale was not planned at the proposed deregistration date.[34] Mr Pearson emphasised the use of the word "planned" in Lopas, while Mr Beck argued that the term "contemplated", which is also used in Lopas, better summarised the test established by that case. With respect to both counsel, we consider that both are attaching too much significance to the wording used in theLopas decision. It was a judicial decision, not legislation. It applied the statutory test in s 52 to the facts of the case before the Court. There is no doubt that on the facts of Lopas, the Court properly characterised the proposed sale of land as"planned". But the Court did not suggest that this was a gloss to be placed on the statutory wording of s 52.[35] What the Court in Lopas was required to do, and what we are required to do in this case, is to determine whether, on the facts of the case, the relevant statutory9 Lopas (CA) at [51].10 At [61]. See also [39]—[40] below.11 At [62].test was met. In the present case, that requires us to assess whether there were grounds for the Commissioner to be satisfied that the value of Mr Thompson'staxable supplies in the 12 months beginning on 30 November 1999 would be not more than $30,000. Given the impending sale of part of the Rolleston property for well over $30,000, there obviously were not. That is all we need to say about this aspect of the appeal.The first Armagh sale[36] The first Armagh sale involved the transfer of the 15 hectare lot of the Rolleston property (which was zoned industrial) to Armagh. As noted earlier, the agreement relating to the sale was signed on 31 March 2000. Armagh claimed an input credit for the GST component but the IRD did not pay the refund claimed by Armagh pending further inquiries as to whether the deposit had been paid. In the context of that inquiry Mr Thompson initially argued that it had, and thus Armagh was entitled to the input credit of $90,000, but in the High Court in the present proceeding he took the opposite view and argued that there had been no payment until September 2000, when the acknowledgement of debt was signed. EventuallyArmagh's input tax credit was granted, so the stance taken by Mr Thompson in theHigh Court was at odds with the position that he had successfully advocated onArmagh's behalf in order to obtain its input tax credit and a consequent payment from the IRD.[37] Dobson J took the view that, in light of his finding that the deregistration on 30 November 1999 was ineffective and the Commissioner had properly reversed it, the first Armagh transaction took place before the subsequent deregistration date of 31 July 2000 and therefore at a time when Mr Thompson remained registered for GST purposes. Thus it was correct for the Commissioner to assess Mr Thompson for the output tax on the first Armagh sale because it was a taxable supply by Mr Thompson while he was registered for GST purposes. We agree with the Judge'sconclusion, for the reasons he gave.[38] However, Dobson J went on to consider whether the first Armagh sale was"planned" in terms of Lopas, in case he was wrong about the first issue. He said thathe would have been inclined to find that the first Armagh sale was not "planned".He said that he inferred from the evidence that, at the end of November 1999, Mr Thompson intended deferring doing anything about the transfer of the remaining parts of the Rolleston farm property for some months and intended to allow a period of time to elapse between securing deregistration for GST purposes and transferring ownership of the rest of the Rolleston land. He noted that the motivation for this wasto minimise GST, but that that did not constitute "planning" for the transaction in theform it was subsequently arranged.[39] We have already observed that the statutory test is not whether a transaction was planned, but whether the Commissioner had reason to be satisfied that no transaction taking all taxable supplies of the taxpayer over the $30,000 limit would occur. In the present case, the taxable supplies of Mr Thompson consisted of the leasing of the Rolleston farm. If he was to stop leasing the farm, there were a number of possible outcomes: one was that he would use the farm himself, but one could expect that if he did so he would have farming related taxable supplies exceeding $30,000 in the ensuing year. Another was that he would sublease the farm, but this would still generate rent that could exceed $30,000 in the one year period. Another was that he could sell the farm, but that would itself be a taxable supply for well over $30,000. Perhaps the only way he could satisfy the Commissioner would be if he intended to keep the farm but stop using it for any business purpose.[40] In fact, he intended that the leasing business would be carried on by an associated entity. The only way that could occur was by the transfer or sublease of the farm to that entity. Either seemed likely to generate taxable supplies over$30,000. So, given Mr Thompson's apparent intention that the leasing businesswould be carried on by another entity, there was no apparent basis on which he could satisfy the Commissioner, before the transfer of the Rolleston farm was completed, that his taxable supplies over the next year would not exceed $30,000. In those circumstances he could not satisfy the statutory test on 30 November 1999 and he would not have been able to satisfy it at any time before the first Armagh sale.[41] We uphold the Judge's conclusion in relation to the first Armagh sale, notonly for the reason the Judge gave but also on the broader basis just outlined.The second Armagh sale[42] The Judge found this sale was not planned at the end of July 2000, although he found it was a likely further step that would occur at a later time to complete the process by which Mr Thompson extricated himself from the ownership of assets. He found that the requirement for a transaction to be "planned" required something more choate and defined than what the evidence established as at 31 July 2000.[43] For the reasons we have given in relation to the first Armagh sale, we disagree with that conclusion. Mr Thompson did not explain how he could cease earning rent income from the farm without subleasing or selling it. We consider he was not in a position to satisfy the Commissioner as at 30 November 1999, as at 30 July 2000, or at any time in between, that he would not have taxable supplies exceeding $30,000 in the forthcoming year.[44] There was however another dimension to this aspect of the case that needs to be considered. Mr Pearson argued that, whether the Commissioner should have done so or not, he did in fact deregister Mr Thompson with effect from 30 July 2000, so the second Armagh sale took place when Mr Thompson was not a registered person for GST purposes. Mr Thompson was, therefore, correct not to charge GST on the second Armagh sale and correct not to account to the Commissioner for any GST in respect of the transaction. In order to evaluate that contention, we need to review the correspondence between the Commissioner and Mr Thompson (and his advisers) at the relevant time.[45] Mr Thompson was in dispute with the Commissioner over his request to be deregistered for GST from 30 November 1999. On 22 October 2002, the Commissioner sent an automatically generated letter to Mr Thompson. It read:Your registration for GST has been cancelled, in terms of Section 52 of the Goods and Services Act 1985, with effect from the taxable period ending 31 JUL 2000.[46] At the time this letter was sent, the Commissioner's position in theadjudication was that the correct date for deregistration was 31 January 2001. Mr Thompson replied by fax, querying the position. He received no reply. After sending two further letters, he received a reply on 27 November 2002 from Mr Peter Consedine, the Area Manager for South Island Investigations. Mr Consedine wrote:As you are aware the dispute between Mr Thompson and the Commission concerns his deregistration for Goods & Services Tax as at 30 November 1999. The issue has gone to Adjudications and Rulings who requested that the details in our TACTICS system be updated to allow them to action reassessments in a timely manner once a decision had been made by that unit.This required changing the cessation date to 31 July 2000 in line with the position taken by the Commissioner. The system then automatically generates a new cessation date and notifies the customer. This also generates a request for a GST return for that period which required notification that Mr Thompson was not required to file a return.[47] It seems that the IRD computer system automatically sent a letter to Mr Thompson when his details were updated to obtain an assessment for the period ending 31 July 2000. Although the IRD officers knew that this would occur, no-one thought to send an accompanying letter explaining to Mr Thompson why he was receiving this letter and explaining that he should ignore the subsequent letter advising him he had to file a GST return for the period. No doubt Mr Thompson was somewhat confused and frustrated by this chain of correspondence.[48] As Mr Consedine admitted in cross-examination in the High Court, the 22 October 2002 and 27 November 2002 letters would have suggested to Mr Thompson that the Commissioner had determined to deregister him from 31 July 2000. Mr Beck argues that this was not a decision, but merely a letter sent indicating that a decision had been made. He argued that this was merely an administrative step and that a clear distinction must be made between a decision and notice of a decision. Certainly Mr Thompson had not applied to be deregistered effective 31 July 2000. However he had requested to be deregistered from 30 November 1999, and this application was still unresolved when the Commissioner sent him the 22 October 2002 letter. Although the deregistration was executed as a result of an internal request, which differs from the usual process, it appears that Mr Thompson was in fact deregistered by an IRD officer holding the proper authority.[49] We are satisfied that the Commissioner deregistered Mr Thompson for GST for the period ending 31 July 2000. The deregistration cannot be characterised as merely an administrative step and as not reflecting a decision by an authorised officer that deregistration should occur. Mr Lee, an IRD officer who gave evidence in the High Court, accepted that this was so. The 22 October 2002 letter led Mr Thompson to understand he had been deregistered and the 27 November 2002 letter confirmed that. There was no suggestion that the 22 October letter was in error nor was there any attempt to override it or resile from it.[50] Subsequently, on 5 August 2004, Mr Lee sent a letter to Mr Thompson informing him that an assessment of GST had been made for the period ending 31 July 2000. A similar letter was sent on 25 January 2005, informing Mr Thompson that the Commissioner had now made an assessment of GST for the period ending 31 January 2001.[51] The real issue turns on the legal effect of the decision to deregister Mr Thompson. The Commissioner contends that its legal significance is over- shadowed by the later assessment made for the period to 31 January 2001. Mr Thompson contends that the Commissioner is time-barred from changing the date of deregistration now and did not do so within time.[52] Mr Thompson's argument rests on an assumption that a taxpayer must beregistered for the relevant GST period before the Commissioner can make an assessment. As Mr Thompson had been deregistered for GST as at the 31 July 2000, the Commissioner was not entitled to make an assessment for the period ending 31 January 2001. This would mean that the second Armagh sale, which was finalised on the 29 September 2000, would not incur GST as it would have occurred after Mr Thompson was deregistered and it is now too late for the Commissioner to override that deregistration and validly assess Mr Thompson for GST on the transaction.[53] Accordingly, the legal significance of the 22 October 2002 deregistration turns on the correct interpretation of the legislation that creates the time bar. This is provided by s 108A of the Tax Administration Act 1994. At the relevant time (whenthe Commissioner made the assessment for the period ending 31 January 2001, on 25 January 2005) that provision read as follows:12108A Time bar for assessment of GST(1) Except as specified in this section or in section 108B, if a taxpayer—(a) Provides a GST tax return for a GST return period; or(b) Is assessed for GST for a GST return period,—the Commissioner may not,—(c) Where the Commissioner has not made an assessment, make an assessment; or(d) Where the Commissioner has made an assessment, amend the assessment so as to increase the amount assessed,—if 4 years have passed from the end of the GST return period in respect of which the GST tax return was provided or, as the case may be, the assessment was made....(4) This section overrides every other provision of this Act, and any other rule or law, that limits the Commissioner's right to amend GST assessments.[54] The effect of s 108A is to prevent the Commissioner from making an assessment after a four year period has elapsed from the end date of the relevant taxable period. Mr Thompson filed GST returns six-monthly, so the relevant taxable period was the period from 1 August 2000 to 31 January 2001. The Commissioner did make an assessment for this period within the four year period. A letter was sent confirming this on the 24 January 2005.[55] The focus of s 108A is on the assessment, not on the registration. A default assessment for unpaid GST can be made on a person who is required to provide a GST tax return for the relevant return period.13 As Mr Thompson made taxable supplies in the relevant period having a value exceeding the statutory period, he wasa "person who is required to provide a GST tax return" for the period ending on31 January 2001.12 The section was subsequently amended as at 31 March 2005 by Taxation (Venture Capital and Miscellaneous Provisions) Act 2004, s 115.13 Tax Administration Act, s 106(1D).[56] By making the assessment on 25 January 2005, the Commissioner has required payment of GST, bringing Mr Thompson back into the GST net. He did so within four years from the end of the GST return period.[57] The fact that Mr Thompson had been informed of his deregistration does not absolve him of the obligation to pay GST. Even someone who has never registered for GST can be assessed if they have made supplies of sufficient value to make them liable to register. This is clear not only from s 106(1D) of the Tax AdministrationAct but also the definition of "registered person" in s 2(1) of the GST Act which is "a person who is registered or is liable to be registered under this Act" (emphasis added). The GST Act does not oblige the Commissioner to register a person before making him or her liable for GST: the obligation to apply to register falls on the taxpayer alone.14 Section 54 makes it clear that obligations and liabilities of any person under the GST Act in respect of any act or omission while the person is a registered person will not be affected by the fact that he or she ceases to be registered or by the fact that the Commissioner cancels his or her registration.[58] In any event, the letter informing Mr Thompson of the assessment for the period up to 31 January 2001 makes it clear that the Commissioner asserts the right to change the date on which a cancellation of registration has taken effect and the evidence of Mr Lee was that the Commissioner did, in fact, change the cancellation date.[59] We conclude that the assessment for the period from 1 August 2000 to 31 January 2001 is valid and should have been upheld.[60] We allow the cross-appeal by the Commissioner on this point and uphold the assessment for the period ending on 31 January 2001, dealing with the GST payable on the second Armagh sale.14 GST Act, s 51.Cost price assessment[61] This conclusion makes it unnecessary for us to deal with a subsidiary appealground run by Mr Thompson against the High Court's conclusion that he was stillliable to account at cost price for the deemed disposition of the balance of the land then retained under ss 5(3) and 10(8) of the GST Act. This issue can only arise if the appropriate date for deregistration is 31 July 2000, but we have held that it is not. In case the matter goes further and our conclusion in relation to the second Armagh saleis disturbed, we record that we would have upheld this aspect of Dobson J's decisionas a proper use of his power under s 138P(1)(b) of the Tax Administration Act.Output tax credits[62] In the High Court, Dobson J considered whether the assessment for the GST period ending 31 July 2000 (which includes the Horsburgh sale and the first Armagh sale) was correct. He found that the assessment wrongly included liability for output tax on the rentals received from Ravelston Properties Ltd.15 In fact, another of Mr Thompson's entities had already returned the rentals and had claimed off-setting input tax credits for expenses. Neither did the Commissioner take into account input tax from expenses incurred in the same period in making the assessment.[63] The Commissioner cross-appeals against this aspect of Dobson J's decisionon the basis that the issue was not pleaded by Mr Thompson and was raised for the first time by the Judge in the High Court. The onus is on the taxpayer to show that an assessment made by the Commissioner is wrong and by how much.16 The Commissioner argued that Mr Thompson failed to provide evidence establishing the extent and validity of any expenses relating to the taxable activity.[64] However we are satisfied that the point was put in issue. Mr Thompson'spleadings raised the issue of quantum in relation to the first assessment. They did not do so for the assessment for the period ending 31 January 2001, as it was accepted that if Mr Thompson was liable to be registered for GST for this period15 At [119][121].16 Tax Administration Act 1994, s 138P(1B); Buckley & Young Ltd v Commissioner of Inland Revenue [1978] 2 NZLR 485 (CA).then the assessment was properly calculated. The evidence provided by Mr Thompson showed that the GST had been accounted for already. Mr Lee accepted that in evidence before the High Court. The Commissioner has not challenged the conclusion that there was double counting, but has simply complained on a technical point that it was not properly pleaded. We are satisfiedthat it was properly in issue and that Dobson J's decision was correct.[65] We dismiss the cross-appeal by the Commissioner on this ground.Tax avoidance[66] As an alternative, the Commissioner argued that it was entitled to make the assessments it did because this was a case of tax avoidance under s 76 of the GST Act. Our earlier conclusions make it unnecessary for us to deal with that argument. It would be rather artificial to do so against an assumption that all assessments were wrong, when we have upheld them. But we again record that we were not impressedby the Commissioner's argument on this topic, which was clearly no more than a back-up argument to the (successful) arguments based on the black letter requirements of the relevant legislation.Penalties[67] Mr Thompson also complains about the punitive late payment penalties applied to the GST assessments. The Commissioner's default assessments originallytotalled around $365,000. We were told that the debt is now more than $2,000,000 due to compounding interest and penalties. Dobson J was invited to issue a new assessment from more recent date so as to remit many of the penalties, but he found that he did not have the jurisdiction to do so.17 We agree.[68] Instead, the Judge invited the Commissioner to reconsider his discretion under s 183D of the Tax Administration Act and remit the penalties that had accrued up to 1 December 2005.18 Until the Lopas decision was delivered by this Court on 30 November 2005, it was open to Mr Thompson to interpret s 52(1) so that he could17 At [133]–[137].18 At [138].deregister before disposing of the properties. It is now clear that this interpretation was incorrect, but at the time it seems to have been the Commissioner's view also.19Moreover, the Judge identified a number of other circumstances that might make remission appropriate.20 We agree with the Judge's views.[69] Our decision in relation to the second Armagh sales makes matters worse for Mr Thompson. But the conduct of IRD officers in telling Mr Thompson he was deregistered as at 31 July 2000 and then assessing him for a later period more than three years later provides a strong basis for the Commissioner to acknowledge hisDepartment's contribution to the non-payment of GST on supplies in the period from 1 August 2000 to 31 January 2001 by an appropriate remission of penalties.Result[70] The appeal by Mr Thompson is dismissed.[71] The cross-appeal by the Commissioner is allowed in part. The assessment for the GST period ending 31 January 2001 is upheld.[72] The cross-appeal on the ground that a credit had to be allowed for input tax for the assessment relating to the period ending 31 July 2000 is rejected. The alternative tax avoidance argument was not considered.[73] We invite the Commissioner to consider remission of some of the penalties on the assessments.19 IRD Tax Information Bulletin Vol 12, No 12, December 2000 at 5–6; and discussion in Lopas(CA) at [12]–[20].20 At [128]─[131].Costs[74] The Commissioner has been largely, but not wholly, successful. We award to the Commissioner 75 per cent of costs for a standard appeal on a band A basis and 75 per cent of usual disbursements. We certify for two counsel.Solicitors: Duncan Cotterill, Wellington for Appellant Crown Law Office, Wellington for Respondent