Malololailai Interval Holidays New Zealand Ltd v Commissioner of Inland Revenue

18 NZTC 13,137

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(Judgment by: Neazor J)

Malololailai Interval Holidays New Zealand Ltd
v. Commissioner of Inland Revenue

Court:

Judge:
Neazor J

Hearing date: 24 June 1996
Judgment date: 11 February 1997

High Court Hamilton

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Judgment by:
Neazor J

Introduction

This case stated under the Goods and Services Tax Act 1985 relates to input tax credits claimed by the objector. The Commissioner has regarded the input credits claimed as zero-rated supplies in terms of s 11(2)(b) of the Act and has disallowed the claims in respect of them.

The objector was established to market the supply of timeshare interval holidays at a resort in Fiji. Three companies are involved in the operation: Malololailai Interval Holidays Limited, a company having its registered office at Port Vila, Vanuatu, ("MIH(V)"), the objector ("MIH(NZ)") and Accent Holidays Ltd ("AHL"), another company registered in New Zealand which has some shareholders in common with MIH(NZ). MIH(NZ) operated under a prospectus registered at the Companies Office under the Securities Act 1978. The statutory supervisor appointed in accordance with the requirements of that Act is Price Waterhouse Trustee Co Ltd. The securities registrar and stakeholder of funds is KPMG Peat Marwick, Accountants.

The scheme as described in the prospectus involved the issue to each owner of an interval holiday of a licence to occupy giving the holder of the licence the right to reserve for one week per year the use of an accommodation unit, a bure, at the Malololailai Lagoon Resort in Fiji. On the issue of the licence each owner was to become a member of Musket Cove Lagoon Resort Club and each owner was required to sign a pooling agreement which governed administration and maintenance at the resort.

The land on which the resort is located is owned by a Mr Smith; the lessee of the land is Kobe Trading Co Ltd of Vanuatu; the sub-lessee is Pine Limited of Vanuatu; and the sub-sub-lessee is MIH(V).

In addition to the matters already mentioned MIH(NZ) has entered into a resort affiliation agreement with an Australian company whichis the Australasian agent for another company domiciled in the United States of America. A part of the package which the purchaser obtains in addition to the interval holiday and licence is a membership of the Australasian company for a period of two years. That membership gives the purchaser access to exchange of interval holiday weeks at the resort for interval holiday weeks at other resorts affiliated to the Australasian company throughout the world.

MIH(NZ) entered into a supply agreement with MIH(V) under which MIH(NZ) had the right to purchase up to 172 interval holidays in 11 existing bures at the resort. The way the matter was arranged was that MIH(V) would transfer an interval holiday to MIH(NZ) for transfer to purchasers contemporaneously with the issue of the licence to occupy pursuant to a sale agreement entered into by MIH(NZ) with its customers.

The selling of the interval holidays in New Zealand was not conducted with the public by MIH(NZ), but by AHL, the business of which is the selling of interval holidays.

What a purchaser obtained on entering into an agreement to purchase an interval holiday was the right to one week's holiday in a fully furnished and equipped bure in Fiji. The right was not specified to be for a particular week and there was a booking arrangement with machinery designed to allocate a week to each owner who required one during the year, including provision for dealing with the situation where two owners wanted to use the same bure for the same week. Each purchaser was entitled to a holiday interval of one week at the resort for each year up to February 2017 when this particular scheme will come to an end because the leasehold on which it is based will determine.

The prospectus contains provision that the maximum purchase price for each interval holiday is $NZ13,990 including goods and services tax (if any). In addition to the purchase price, owners would become liable for an annual maintenance fee which, at the beginning at least, was about $NZ300 per holiday interval. On a sale being effected by AHL the purchaser would pay to the order of KPMG Peat Marwick the full purchase price. AHL would send advice to MIH(NZ) of the transaction and would submit an invoice to MIH(NZ). Provision was made for the deduction of the statutory supervisor's charges and thereafter the whole of the amount obtained from the purchaser, less $4,000 paid to MIH(NZ) and the statutory supervisor's fees would be paid to AHL, in effect as a fee for its services to MIH(NZ). AHL's invoice was so prepared as to include a GST element. AHL paid the sum earmarked as GST to the Inland Revenue Department. That sum would be recovered eventually by MIH(NZ) claiming it as a GST input tax credit.

Purchase monies were not released by the stake holder until the statutory supervisor had confirmed that the purchaser's licence to occupy and copy of the pooling agreement had been executed and mailed to the purchaser or the purchaser's assignee.

The purchasers of an interval holiday would be bound, according to the prospectus, by:

(a)

the provisions of the deed of participation which formed part of the prospectus;

(b)

the agreement for sale and purchase and the provisions of the general conditions of sale which also formed part of the prospectus;

(c)

the pooling agreement which formed part of the prospectus and provided for the transfer and forfeiture of interval holidays;

(d)

the licence to occupy which was issued subject to the terms and conditions set out in the general conditions of sale and the pooling agreement; and

(e)

the constitution and rules of the Musket Cove Lagoon Resort Club.

Purchasers were advised in the prospectus that subject to compliance with the provisions of the pooling agreement they would have the right to rent, share, and bequeath by will or gift their interval holidays. They were also told that they would not have any proprietary interest in the bures which would revert to Pine Ltd upon expiration of the sub-sub-lease in 2017.

Documentation

For the objector, Mr McLay referred to provisions in the various agreements which provide the documentation in respect of the objector's activities which have been summarised above.

The first is a deed of participation between MIH(NZ), Price Waterhouse Trustee Co Ltd and MIH(V). That recites that MIH(V) has built 11 bures at the resort and has divided the occupancyof those premises into interval holiday entitlements of one week each per year; that MIH(NZ) has the right to purchase up to 172 interval holidays of one week and the persons who purchase such interval holidays from MIH(NZ) will receive a licence to occupy a bure for one week's interval holiday at the resort in each year and will become members of the Musket Cove Lagoon Resort Club.

The second is a supply agreement between MIH(V) and MIH(NZ) which contains definitions of terms thus:

" 'Interval holiday' means the right granted to an owner by the offeror [MIH (NZ)] under a licence to occupy subject to the Pooling Agreement and allotted pursuant to the prospectus.

'Licence to Occupy' means the certificate recording the grant of a licence for an interval holiday in respect of the resort to an owner."

That agreement provides that MIH(V) is to make available to MIH(NZ) 172 interval holidays and the licences to occupy in respect thereof for transfer to MIH(NZ) or such owners as MIH(NZ) shall nominate, provides for payment, and specifies that MIH(NZ) is to be the agent of MIH(V). That agreement ties MIH(NZ) to AHL as sub agent or marketer to the exclusion of others.

The next agreement is a marketing agreement between MIH(NZ) and AHL. That agreement is based on the same definition of "interval holiday" and provides that AHL is to be the agent of MIH(NZ). It provides that AHL is to promote and sell the interval holidays in accordance with the statements made in the prospectus and is not to make any statement or representation or give any warranty that is not contained in the prospectus.

Under that agreement MIH(NZ) appointed the managing director of AHL as the person authorised to sign agreements to purchase interval holidays and pooling agreements for and on behalf of MIH(NZ). The agreement restricted the price of interval holidays to a maximum of $13,990 (including GST if any) but allowed AHL to reduce the sale price, with the proviso that any sale price should be sufficient to pay the sums due to MIH(V), the statutory supervisor, the securities registrar, and the Commissioner of Inland Revenue. The agreement required AHL to submit an invoice to MIH(NZ) and the way in which payment was to be made after any sale.

The next document is an agreement to purchase an interval holiday and the general conditions of sale of that agreement between MIH(NZ) and the purchaser of a holiday. That agreement defines what is sold to the purchaser and it is convenient to set out in full that provision:

2.0 INTERVAL HOLIDAY 2.1 The Interval Holiday sold and purchased in this Agreement is defined as and includes the following:2.1.1 A Licence to Occupy one Bure for one week in each year and for this purpose a year is defined as commencing on 8 February and ending on 7 February in the next subsequent year. All Licences are deemed to have commenced on 8 February and shall determine on 7 February 2017. A Bure is defined as an accommodation unit at Malololailai Lagoon Resort on the Island of Malololailai, Fiji.2.1.2 One membership of Musket Cove Lagoon Resort Club ("the Club") subject to the Constitution and Rules of the Club annexed to the Pooling Agreement referred to below.2.1.3 Two years' subscription to the Resort Condominiums International Inc (RCI) Exchange Programme.2.2 The Interval Holiday and the above benefits are subject to the terms of the Pooling Agreement which each Purchaser is required to execute contemporaneously with this Agreement. The Purchaser hereby agrees to be bound by the terms of the Deed of Participation a copy of which forms part of the Prospectus issued under the Securities Act 1978 and pursuant to which the sale of the Interval Holiday has been offered to the Purchaser.

The next agreement is the pooling agreement, which is entered into between an individual purchaser, the several parties who have already or shall thereafter enter into the agreement by executing a copy of it, and MIH(NZ). That agreement recites inter alia the basis on which MIH(NZ) proposes to offer interval holidays and recites that those who have purchased holidays:

"are desirous of establishing a pooling plan whereby their respective interval holidays shall be maintained, operated and administered under a plan of pooling as herein described for the mutual enjoyment,convenience, benefit and protection of each of the participants and of their respective successors in titles,"

and that each participant is a member of the club pursuant to the terms of his agreement for sale and purchase. It is to be noted that the participants are those who purchase interval holidays. The term does not include MIH(NZ). By definition in that agreement:

(a)

"Bure" means "an individual self contained accommodation unit in the resort (whether standing alone or forming one half of a duplex construction) and which is for the exclusive use of the owner or his nominee during any Use Week."

(b)

"Licence" means the licence to occupy issued to each owner of an interval holiday and which entitles the owner to the occupancy of one bure, and the use of the chattels and common property for one week in each licence year and terminating on 7 February 2017.

(c)

"Use Week" means a pooled interval holiday reserved by the vendor or a participant in the manner specified in the agreement.

Clause 2.01. of the agreement provides that each pooled interval holiday is to be held, occupied etc subject to the provisions of the pooling agreement which is agreed and declared to

"be for the purpose of establishing and maintaining and pooling of interval holidays as herein described and for the purposes of enhancing and protecting the value and desirability and attractiveness of the pooled property."

The agreement is stated to be for the benefit of MIH(NZ) and participants.

Clause 3.01. provides for the rights of occupancy in these terms:

"The vendor and each participant shall have the right of exclusive occupancy and use of a pooled interval holiday together with the non exclusive right to use and enjoy the common property during the Use Week or Use Weeks as shall have been reserved by him pursuant to the provisions of Clause 4 of this agreement."

That clause goes on to provide that "notwithstanding his ownership of a pooled interval holiday" a participant is to occupy a pooled interval holiday or exercise any rights of ownership with respect to it only for sale, transfer or assignment or to vote under the rules of the resort club, or as provided and reserved to him by the pooling agreement in relation to the Use Week or weeks properly reserved by him.

Clause 4.01. of the agreement provides for reservations. It was one on which Mr McLay placed some reliance. That clause provides that each participant is to have the right in each year:

"to use and occupy a pooled interval holiday for a Use Week ... provided that the vendor or such participants shall have reserved such Use Week in accordance with the procedures for the making of reservations as shall be made from time to time in accordance with the rules and subject to the following:

(a)

Reservations shall be on a first requested, first served basis. In the event of reservation request for the same Use Week being made concurrently, the manager shall employ a fair system for selection which shall be applied uniformly. As long as the manager uses such a system, the manager's decision shall be final."

The clause goes on to provide for an allocation in respect of requests for use weeks where there are conflicting requests for use weeks or for particular bures. In such cases allocation is specified to be by ballot.

By the use of the term "floating week", it is provided in cl 5 of the agreement that no particular week is allocated to any owner.

Provision is made in the agreement for transfer, assignment or letting of any interval holiday under the agreement in the event of death or bankruptcy of an owner and there is also provision for transfer or assignment of an interval holiday owned by any person.

There is also a Musket Cove Lagoon Resort Club of which a purchaser becomes a member. The purpose of that club is to represent holiday owners at the resort and to act with them collectively in the management of the resort for the benefit of all members of the club. The annual membership fee provides income to meet the club's budgeted expenditure covering costs of services for the accommodation provided, maintenance of the property, insurance, and if necessary a sinking fund to cover storm damage.

Issue

The subject of the present objection is the marketing services provided by AHL to MIH(NZ). Section 8 of the Act imposes GST on the supply in New Zealand of goods and services. It is accepted on both sides that the marketing services in issue constitute a taxable supply within the meaning of the Act. Taxable supply includes supply taxed at the rate of zero percent pursuant to s 11 of the Act. The question is whether these services are so rated by virtue of the provisions of s 11. If they are, the objector cannot claim an input tax credit in respect of them.

Section 11 provides, so far as is relevant, that:

"11(2) Where, but for this section, a supply of services would be charged with tax under section 8 of this Act, any such supply shall be charged at the rate of zero percent where-

(a)

[as originally enacted] The services are supplied directly in connection with the transportation, or the arranging thereof of passengers or goods, either to New Zealand from any country or place outside New Zealand, or from New Zealand to any country or place outside New Zealand, ... and not including any services that are ancillary transport activities such as loading, unloading, and handling ... or

(b)

The services are supplied directly in connection with land, or any improvement thereto, situated outside New Zealand; or

(c)

The services are supplied directly in connection with movable personal property, other than choses in action situated outside New Zealand ...; or...

(e)

The services are supplied for and to a person who is not resident in New Zealand and who is outside New Zealand at the time the services are performed, not being services which are supplied directly in connection with-

(i)

Land or any improvement thereto situated outside New Zealand; or

(ii)

Movable personal property situated inside New Zealand ..."

Section 11(2)(b) is relevant in this case, reference being made to subs 2(a), (c) and (e) only because the same phrase "directly in connection with" is used in each of the paragraphs.

Argument

The arguments on each side are relatively narrow in compass. For the objector, Mr McLay submitted that what was being sold to those with whom AHL dealt was not to be regarded as coming within the expression "land (or any improvement thereto)" in s 11(2)(b); alternatively, that what was done by AHL is not properly described as services "directly in connection with" land or improvements situated outside New Zealand. Mr McLay did not dispute that the marketing services have some connection with the bures located at the resort, but submitted that such connection is not direct, having no effect on the land itself.

For the Commissioner, Mr Douch submitted that what AHL does for MIH(NZ) is to supply the latter with a completed sale of an interval holiday and licence to occupy relating to the resort; that the resultant right to occupy land and the improvement to it (a bure) is directly connected with the land or improvement thereto and that the obligations undertaken by the purchaser under the contract are similarly directly connected. Mr Douch submitted that activities which result in the occupancy of the land and improvements are as a matter of fact directly connected with the land and improvements; even if the transaction does not create a legal interest in the land, it can be connected with it, in particular with the bure built upon it.

Under his first heading, Mr McLay submitted:

(i)

that the use of the term "licence to occupy" is not determinative of the matter, because by definition in the documents, the licence is simply a certificate issued, and because in any event nomenclature is not decisive: Buckley & Young Ltd v C of IR (1978) 3 NZTC 61,271 (CA) at pp 61, 275-61,276;

(ii)

that the term "interval holiday", by virtue of cl 1.1(c) of the supply agreement between MIH(V) and MIH(NZ) meant the right granted under a licence to occupy "subject to the Pooling Agreement". Clause 3 of the Pooling Agreement provides for a right of exclusive occupancy during the use week or weeks as shall have been reserved pursuant to the provisions of cl 4. Mr McLay submitted that when the documents are read together what the purchaser got for the money was not an absolute entitlement to occupy a bure, but a right of reservation in relation to a right of occupancy. In the absence of a fixed entitlement to a particular bure, or any bure in a particular week (having regard to the provision for reservations and balloting if necessary), Mr McLaysubmitted that the scheme was the antithesis of any interest in land being acquired by the purchaser; there was no certainty which would be expected if there was such an interest.

There is no question that a purchaser did not receive any kind of legal title to the land or any right engrafted on that legal title. However, Mr McLay's argument that a purchaser received less than a right to occupy a bure for a week in every year would, I am sure, dismay those who had paid up to $13,990 for a right under the scheme. If the argument is to be accepted, primacy is required to be given to the mechanics of operation of the scheme, rather than to what the scheme actually delivers to a purchaser.

There is consistency (as one would expect) throughout the documents; in particular in the definitions in the supply agreement and the marketing agreement and in the provisions of cl 2 of the general conditions of sale and the provisions of the pooling agreement. It is in my view abundantly clear that what is sold to a purchaser by the objector through the agency of AHL is a right to occupy a bure at the resort for one week in each year. There is provision for working out what week and which bure, but that does not diminish the purchaser's right to a week of occupancy of the resort and, in particular, of a bure. In addition, the purchaser obtained membership of the Musket Cove Lagoon Resort Club (with associated rights and obligations related to use of the resort property), and a two-year subscription to the International Exchange Programme.

It is not in my view necessary to consider the first point of Mr McLay's argument further than that, because the issue is not whether the purchaser acquires land or an interest in land, but whether the services provided by the marketer on behalf of the objector are "directly in connection with land", which may involve much less than acquiring an interest in the land. By way of example, the provision of gardening services would surely come within the statutory words.

Counsel agreed that there is no direct authority on that phrase as it is found in s 11(2)(b), but that it must be given the same meaning wherever it appears in the section.

Both counsel referred to decisions in the Taxation Review Authority and in the High Court on the same or a similar phrase: Case E84 (1982) 5 NZTC 59,441: (Bathgate DJ), Case P78 (1992) 14 NZTC 4,523 (Barber DJ), Auckland Regional Authority v C of IR (1994) 16 NZTC 11,080 (Barker J) and Wilson & Horton Ltd v C of IR (1994) 16 NZTC 11,221 (Hillyer J).

The last named case went on to the Court of Appeal, but not on the issue arising from the words "directly in connection with".

Case E84 related to deductions allowable under s 165 of the Income Tax Act 1976. What is allowable is "expenditure incurred by the taxpayer in connection with (a) the calculation of the assessable income of the taxpayer for any income year". It is to be noted that the word "directly" was not used. The issue was whether expenses in respect of the use of the taxpayer's car between his workplace and the office of the tax consultant he used for the purpose of "clearing up his tax returns" was deductible. The calculation of the taxpayer's assessable income was held to have been a secondary reason for the consultation, difficulties in respect of provisional tax, penal tax and tax paid overseas being of much more significance in the consultation.

In the course of his decision ruling that the deduction claimed was not allowable, Bathgate DJ said:

"It may be that only an empirical and common sense approach to the interpretation of the words can be applied in each particular case to determine where, if at all, the line should be drawn to allow or not allow expenditure 'in connection with' an assessment. However I believe that a narrow interpretation of the words '... any expenditure ... in connection with ... the assessment ...' is the correct interpretation: only expenditure closely and immediately connected to the assessment itself is intended to be allowed as a deduction, and expenditure more remote, as for instance in this case, the expenditure of O in making his trip to visit A, is not expenditure allowed as a deduction under the section.

...

The cases to which I was referred and relating to the appropriate interpretation of the words 'in connection with', in so far as they illustrate any relevant aid to interpretation appear to support a narrow interpretation of those words as being the correct interpretation. It is a matter of degree whether, on the interpretation of a particular statute, there is a sufficient relationship between subject and object to come within the words 'in connection with' or not. It is clear that no hard and fast rule can be or should be applied to the interpretation of the words 'in connection with'. Each case depends on its own facts and the particular statute under consideration."

A good deal of the debate in that case about whether a narrow or wide interpretation of the statutory phrase was appropriate might have been seen as unnecessary if the word "directly" had been used, as it is in s 11 of the Goods and Services Tax Act 1985.

Case P78 was a decision upon s 11(2) of the last-named Act. The question was whether a local authority which operated an international airport was making zero rated supplies in respect of international airport dues, passenger service charges and quarantine rubbish disposal. The argument related to s 11(2)(a) of the Act.

International airport dues were charged under regulations on each airport operator. Each landing of an aircraft attracted the charge which was related to the weight of the aircraft. The funds provided for meteorological services, the control tower and generally for safe take-off and landing of aircraft and for the use of the runway and airport terminal facilities.

The passenger service charge was a liability which by regulation fell upon individual international passengers. The money was used, so far as the objector was concerned, for development work such as new terminals and runways at the airport.

Quarantine rubbish disposal involved the incineration (to prevent the introduction of disease) of all food waste and other garbage arriving at the airport and the maintenance of an incinerator for that purpose.

Airport dues were held to be within s 11(2)(a) because passengers or goods could not realistically be transported from any country to New Zealand by air unless aircraft could be landed and parked on the tarmac. Those services, and the meteorological, control tower and safety services were held to be an integral part of international transport and not just matters ancillary or subordinate to the provision of transport.

On the other hand, the passenger service charge was held not to apply to the transport of passengers or goods, notwithstanding that a passenger could not make an international flight without paying the charge. It was held that development work in respect of the provision of runways and terminals was not in the same category as the provision of a runway and terminal for actual use for a specific flight. What is provided is not part of any present transport, and is only indirectly related to present transport.

Similarly the quarantine rubbish disposal charge was held not to be supplied directly in connection with the transport of passengers, but to be ancillary to it. It was not supplied or directly related to the carrying process.

Auckland Regional Authority v C of IR related to the same or comparable charges: airport dues, terminal services charges and garbage disposal. The terminal services charge was for the use by international airlines and passengers of terminals and equipment in embarking on or disembarking from aircraft, but not including general public halls and customs booths.

Barker J's decision in result accorded with that of Barber DJ, holding that airport dues or landing costs were zero-rated, but that the other charges were not within s 11(2)(a) [at pp 11,084-11,085]:

"Applying the normal meaning of the words, I cannot see how the service provided by an airport authority in providing runways etc can be other than directly in connection with the international transportation of passengers and goods by air. International aircraft are usually the largest in service; they must land at an international airport. Therefore the direct costs in connection with their landings and departures must be seen as directly in connection with the international transportation of passengers and goods. Landing and departing is not one of those ancillary transport functions which are excluded from primary consideration.

The position of the international terminal charges is not so clear-cut; they are 'ancillary' in the sense of being secondary or subservient; they are of the same kind of transport activity as loading, unloading andhandling of passengers and cargo. It is not hard to imagine an international airport in a small, undeveloped country which does not boast a sophisticated array of departure lounges, gate lounges, public address and solari systems. I find it difficult to see that these items are other than ancillary activities, akin to loading, unloading and handling which the statute gives as examples of ancillary activities. Nor can I see that they are services directly in connection with international transportation in the same way as is the provision of runways.

I take a similar view of the quarantine rubbish disposal activity. This service, although essential, is not directly in connection with transportation to or from New Zealand. It is provided as a separate service and comes within the Privy Council Databank approach although it might have come within the majority approach in the Court of Appeal. Like Judge Barber, I see this service as essentially a sanitation measure to prevent the spread of disease. Alternatively, it is an ancillary transport activity like loading, unloading or handling."

In Wilson & Horton Ltd v C of IR the company carried on the taxable activity of producing newspapers. The case involved charges made for placing advertisements for the sale of goods in a newspaper on behalf of overseas customers, and whether such services were zero-rated under s 11(2)(e). The part of Hillyer J's judgment to which counsel referred related to the possibility that s 11(2)(b) or (c) applied to the advertisements. As to that, Hillyer J said [(1994) 16 NZTC 11,221 at p 11,224]:

"On consideration I agree with counsel. The supply of space and the services rendered by Wilson & Horton are directly connected with the advertising but not with the goods advertised. The goods are, as it were, at least one step removed from the services supplied by the newspaper proprietor.

That leaves therefore the question whether s 11(2)(e) applies, and I should say that both counsel from the beginning of their submissions have concentrated on this section and not s 11(2)(b) or (c). Again, services supplied by Wilson & Horton relating to advertisements in the Herald would not be 'directly in connection with' land or any moveable property situated in New Zealand, whether that property was specific or general. The words 'directly in connection with' must mean the same in s 11(2)(e) as they do in s 11(2)(b) and (c).

One example given by counsel was the painting of a vessel. That service would be directly in connection with the vessel, but services rendered to the passengers and crew of a vessel would not be rendered directly in connection with the vessel."

For the objector, Mr McLay submitted that the marketing services provided by AHL are comparable with the advertising space supplied in Wilson & Horton v C of IR in that the marketing services are one step, if not two, removed from the land upon which the interval holidays are to be taken. He submitted that the accommodation services at the resort were sold by MIH(NZ) pursuant to a contract separate from the marketing agreement between AHL and MIH(NZ). He sought to apply to the present case the ship analogy referred to by Hillyer J, equating the bures at the resort with the vessel and the passengers and crew with the public of New Zealand. Mr McLay accepted that the marketing services have some connection with the bures, but submitted not a "direct" connection. He made further comparison between the marketing services and the international passenger charges and quarantine rubbish disposal charges in the two airport cases. Finally he contrasted the nature of the services provided by AHL in respect of contractual rights of occupancy of the land with what would be done by builders or architects concerned with construction of bures on the land.

For the Commissioner, Mr Douch submitted that AHL supplied MIH(NZ) with a completed sale of an interval holiday and licence to occupy which is properly described as "directly in connection with the land or improvements" and with a contract under which the purchaser assumed obligations in respect of the land.

Mr Douch contrasted the statutory phrase "directly in connection with the land" with "directly connected to" it and submitted that statutory words do not require that the service supplied be physically connected in any way with the land or improvements or effect physical alterations to it. He submitted that any activity which results in the occupancy of the land and improvements is in fact directly connected with that land and improvements. Thus his comparison in relation to the airport cases was between runways and international transport.

So far as Hillyer J's ship analogy is concerned Mr Douch submitted that services consisting of providing passengers and cargo for the vessel would properly be regarded as within the phrase "directly in connection with" the vessel, and that the same view would be proper in respect of the resort and in particular of the bures. Further he submitted one of the services by AHL is securing payment for annual maintenance of the land or improvements which in itself is a service directly connected with both.

Mr Douch sought to distinguish the Wilson & Horton decision on the basis that Wilson & Horton's services did not affect the sale of any goods. That company provided information as a result of which vendor and purchaser could deal with each other in respect of the sale, Wilson & Horton being paid whether or not there was a sale. The subsequent dealing provided the step between the provision of taxable services and the sale of the goods. By contrast here the provision of services was the actual sale of the objector's "product", which is the right to occupy land and improvements in Fiji and the associated obligation to assist in their maintenance; and that is a service directly in connection with the land or improvements.

In making the determination in any case, it is essential to concentrate on the right transaction. As Richardson J put it in Wilson & Horton Ltd v C of IR (1995) 17 NZTC 12,325 (CA) at p 12,328:

"[Sections 8(1), the definitions of 'taxable activity' in s 6(1)(a) and of 'supplier' and 'recipient' in s 2, ss 9(1) and 10(2)] are directed to the contractual arrangements between the supplier and the recipient of the supply. In keeping with the general statutory scheme in that respect s 11, providing for zero rating of supply transactions where the stated overseas element is present, follows that same pattern. It follows that where, as in the presently material s 11(2)(e), the provision refers to 'services ... supplied ... to a person' the statutory dictionary applies and the phrase refers to the contractual position and so to the person who has provided the consideration."

I would regard the contractual transaction between MIH(NZ) and the purchaser of an interval holiday as within the descriptive words "directly in connection with land or any improvement thereto", although that determination is not essential to this decision, but when attention is paid to the services supplied by AHL to MIH(NZ) consider that those services are not within the statutory description. What AHL does is to advertise and promote interval holidays for MIH(NZ) and negotiate the contract for individual holidays (including the consideration for that contract between the purchaser and MIH(NZ)) up to the point where the contract is effected between those two parties.

The services provided by AHL are not directly in connection with the land or the improvements. The transaction of those considered which would be in that category is the transaction between MIH(NZ) and the purchaser. The transaction between AHL and MIH(NZ) is one which brings about the transaction which has direct effect, but in my view is of a kind to which Hillyer J's words may properly be applied - it is one step removed from the direct transaction.

If one of the analogies referred to needs to be chosen I would take that of the publication of advertisements in the Wilson & Horton case. The newspaper proprietor's services facilitated or opened the way to the transactions between vendor and purchaser, and that in my view is what AHL did, although it was more closely involved in the transaction to which the statutory words apply than the publisher of an advertisement would be. Nevertheless the transaction having direct effect was not that of the publisher, or in this case of the sales agent.

Accordingly in my judgment the answer to the question in the case stated is that the Commissioner acted incorrectly in making the amended assessments of the objector's GST liability for the six taxable periods referred to in the case on the basis that the supplies of marketing and selling services should be zero rated in terms of s 11(2)(b) of the Act. The assessments should be amended by allowing input deductions in the amounts disallowed by the Commissioner.

The objector is entitled to costs. If the parties cannot agree as to amount memoranda may be submitted.