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Case notes 2008

In this section you will find brief notes of decisions made by the Taxation Review Authority, the High Court, Court of Appeal, Privy Council and the Supreme Court. These case notes do not set out Inland Revenue policy, nor do they represent our attitude to the decision.

Title Decision date Case Appeal status

Summary judgment application for GST refund

17 December 2008

Sadiqs as Trustees of Azura Family Trust

The plaintiffs failed in their application for a refund for their February GST return, and the Commissioner had given notice of his intention to investigate within 15 days. This case Confirms that a screen dump letter generated is not proof of service. Not appealed.

Supreme Court upholds common law position on proof of amount in PAYE and GST offending

12 December 2008

Smith v R

The overall effect of this case, together with the Court of Appeal decision, is that the general position at common law that value is not an element of an offence, unless the essence of the offence is to continue to apply to a section 143A(1)(d) offence. It is only necessary for the Crown to prove that an amount of the PAYE deduction has been misapplied; it does not have to prove the precise amount of the deduction that has been misapplied. Appealed.

Taxpayers' second judicial review successful

25 November 2008

Chesterfields Preschools Limited and Ors v the Commissioner of Inland Revenue

The Commissioner was found to have failed to apply the orders made in earlier judicial review proceedings and was ordered to comply with the earlier orders. The decision confirms that the Commissioner whenever possible must follow the directions given by the Court in judicial review proceedings. Not appealed.

Section 157 catches agent

13 November 2008

Enterprises Lakeview Limited v the Commissioner of Inland Revenue

This decision illustrates in the revenue context an application of the traditional position that the Courts will not allow the corporate form to be used for purposes of fraud or as a device to evade legal obligations where advantages of incorporation are used and intended to deprive others of their rights. Not appealed.

Commissioner's right to withhold a GST refund

11 November 2008

Contract Pacific Limited v the Commissioner of Inland Revenue

The High Court concluded that in any investigation of a refund that engages section 46(2)(a) of the GSTA, requests for information made under that investigation will engage section 46(2)(b) as well. Any such requests that do not comply with the time limits in section 46(4) will cause the Commissioner to lose his authority to withhold the refund while he carries out his investigation. Not appealed.

Commissioner's right to remove and copy electronic information

22 December 2008

Avowal Administrative Attorneys Limited and Ors v the District Court at North Shore and the Commissioner of Inland Revenue

The High Court held that the definition of "book and document" in the TAA included computer hard drives. The Commissioner therefore had the right to remove hard drives for copying under section 16 of the TAA. This decision should be read together with the interim judgment released on 28 February 2008. Not appealed.

The court confirmed section 76 is a general anti-avoidance provision and every avoidance issue needs to be addressed objectively on its merits

19 December 2008

Glenharrow Holdings Limited v the Commissioner of Inland Revenue

A well reasoned decision which confirms that where transactions are not a "sham", the Commissioner is still entitled to consider the tax consequences of the transactions under section 76 of the GSTA. The court has confirmed that section 76 is a general anti-avoidance provision and therefore every avoidance issue will need to be assessed objectively on its merits on a case-by-case basis. Appealed.

Supreme Court ruling on "Trinity"

19 December 2008

Ben Nevis Forestry Ventures Limited and Ors v the Commissioner of Inland Revenue

This decision will have significant and lasting implications for matters engaging section BG 1, and clearly directs that the Commissioner ought to advance a matter on the basis that there is a sham, or avoidance, but not both. Appealed.

Application for review on grounds of bias unsuccessful

19 December 2008

J G Russell v the Taxation Review Authority and the Commissioner of Inland Revenue

The taxpayer applied to the High Court for review of the Taxation Review Authority's refusal to recuse himself from hearing the applicant's challenge. The applicant alleged presumptive bias resulting from the extensive history of litigation involving the applicant before the TRA. The application for review was dismissed by the High Court. Not appealed.

TRA has jurisdiction to substitute an assessment

13 August 2008

Beckham v CIR

The Taxation Review Authority has jurisdiction to substitute an available assessment where the original assessment of the Commissioner is not upheld. Appealed.

No deduction for fines

17 September 2008

TRA 105/05 Dec 9/2008

The TRA accepted that there was no nexus to income earning and good policy reasons to disallow fines incurred by a trucking firm. Not appealed.

Test for intention/purpose

12 August 2008

CIR v Boanas, Boanas, Railton and Railton (Mt Rosa Partnership)

The High Court clarified that the CIR does not need to look at the intentions of the individual partners but left it open for an individual partner to show a different intention or purpose from the other partners. The High Court also discussed the intention/purpose test. Appealed.

Judicial review granted for delay

04 September 2008

Peter Allan Harris v the District Court at Auckland and CIR

The taxpayers were granted application for judicial review, holding that, considering the total time taken in the prosecution, there had been undue delay, and that in the circumstances, the District Court Judge should have exercised his inherent power to prevent an abuse of process and to direct a stay of the proceedings. Not appealed.

Forfeiture of shares taxable under FIF regime

23 September 2008

Govind Prasad Saha v CIR CIV 2007-485-701

The Commissioner treated the forfeiture of shares as a disposal at market value. The plaintiff maintained that the shares were not disposed of for gain; rather there was an adjustment to the original purchase price. His Honour held that the forfeiture operated as a purchase price adjustment; however, he did not consider that the arrangement mattered in terms of the Foreign Investment Fund Rules (FIF). Not appealed.

When dividends are paid

04 June 2008

TRA Decision 07/08

When an unconditional dividend is declared, it is automatically credited to the shareholders' current account. Crediting a current account constitutes payment of the dividend. Not appealed.

Commissioner's output assessment successfully challenged

09 May 2008

TRA 036/02 Decision 6/2008

The taxpayer had received an input tax credit through the Commissioner's default in filing a case stated but this did not lead to the conclusion the taxpayer had a taxable activity. Not appealed.

Qualifying trust and corpus

13 March 2008

TRA decision 05/08

Section BD 1 (2) of the Income Tax Act 1994 includes reference to section 242 (c) of the 1976 Income Tax Act. Not appealed.

Delegated authority

02 April 2008

Shirley and Ronald Marshall v The Commissioner of Inland Revenue

On 4 October 1990, the taxpayers purchased 56 Arnold Street which comprised an area of 5,265 square metres and a dwelling house. The property was further subdivided into 11 sub-lots and houses were built on all but two of the sub-lots. The taxpayers separated in April 1991. Shirley Marshall took the major share of the subdivided property and continued with its development. All the subdivided lots were sold by the taxpayers from 1991 onwards. In 1994 Shirley bought another piece of property, at the Esplanade with her new partner. She built a house on it and sold it within two years. Not appealed.

Final determination in the High Court stands

11 April 2008

Commissioner of Inland Revenue v Central Equipment Company Limited

Central Equipment Company Limited made two applications for special leave in the Court of Appeal for interim relief in relation to two prior decisions of the High Court which put the company into liquidation. These two prior decisions were cause for Mr Faloon to make applications for relief and recall. The High Court found that these proceedings had already been concluded by final judgments and were final. The Court could not exercise its jurisdiction in respect of Mr Faloon's two applications. Appealed.

Supreme Court decides on taxpayer secrecy

14 April 2008

Westpac Banking Corporation Limited, BNZ Investments Limited, ANZ National Bank Limited and Ors v The Commissioner of Inland Revenue SC 66 and 67/2007

The exceptions in the taxpayer secrecy legislation permit the discovery of documents held by the Commissioner in relation to a taxpayer in defence of his assessment against another taxpayer. Appealed.

ANZ has second cause of action struck out

15 April 2008

Case ANZ National Bank Limited and Ors v The Commissioner of Inland Revenue CIV 2005-485-1037, 1038, 1039; 2006-485-1105, 1108, 1109, 1111 (Strike-out application)

An interlocutory application by the Commissioner to strike out the second cause of action in ANZ's statement of claim was granted. Not appealed.

Accountants' advice documents must be discovered

15 April 2008

ANZ National Bank Limited and Ors v The Commissioner of Inland Revenue CIV 2005-485-1037, 1038, 1039; 2006-485-1105, 1108, 1109, 1111. (Discovery application)

An interlocutory application made by the Commissioner for discovery of ANZ's accountants' advice documents was granted. The documents were relevant and not confidential. Not appealed.

Jurisdiction of the District Court in tax claim

24 April 2008

Diederik Meenken v District Court, Masterton and The Commissioner of Inland Revenue

"Unpaid tax" constitutes a "debt" for the purpose of section 29 of the District Courts Act 1947. It is the only founding jurisdiction of the District Court for a claim for unpaid tax. Not appealed.

Child support - retrospective reviews and departures

24 April 2008

IPD v KME and The Commissioner of Inland Revenue

A Child Support Act 1991 question of whether a departure order from a formula assessment could be retrospective. The High Court did not follow Aspinall and Johnson, preferring CYF v SKF, WAC v CIR, and Hastings v Morel, and found that there was jurisdiction to make a departure order retrospectively. The matter was remitted to the Family Court for determination on its merits. Appealed.

Application to represent a taxpayer company by virtue of a long-standing association with the company

08 March 2008

Central Equipment Company v The Commissioner of Inland Revenue

An application to file special leave with the Court of Appeal was initiated by Mr. Faloon, purportedly as a representative of the taxpayer company, against the decision of the High Court to put the company into liquidation. The application was dismissed. Not appealed.

Trinity supreme court hearing adjourned

19 February 2008

Ben Nevis Forestry Ventures Limited, Accent Management Limited and Ors v The Commissioner of Inland Revenue

The Supreme Court has adjourned the Trinity appeal hearing until 23 June 2008. Appealed.

A deed of gift of money and declaration of trust

28 February 2008

Begg and Jacksons v The Commissioner of Inland Revenue

A deed for a gift of money to be paid in future coupled with a declaration of trust for a home to secure that payment is not a gift. Not appealed.

Tax advisor's statutory non-disclosure right narrower than legal professional privilege

03 March 2008

Iain Wilson Blakeley v The Commissioner of Inland Revenue

The protection afforded by section 20 B is much more confined than legal professional privilege. A list of clients' names is not protected thereby. Appealed.

Trainer's percentage is exempt income

11 January 2008

TRA Decision Number 2/08

Judge Barber made findings of fact that the employment terms between the disputant and M and the disputant and M's son enabled them to train M's horses on company time or on their own time without needing to pay the disputant for that service. The Judge said that it followed from that that M's horses were not being trained by the disputant but received the "necessary ancillary services" as horses in the stables at M's expense. Not appealed.

Procedural irregularities in tax assessments

24 September 2008

JD & CE Henson Partnership & Ors v Commissioner of Inland Revenue

Taxpayers' appeal against TRA decision which held that the income tax assessments were valid and correct. Taxpayers alleged that the assessments were invalid as they failed to quantify the amount of tax due and that the TRA lacked jurisdiction to hear a case where there were no valid assessments before it. Alternative argument on the correctness of the assessments. Appealed.

Physical receipt of income not necessary to be affected by a tax avoidance arrangement

08 February 2008

TRA Decision Number 04/08

The taxpayer applied to have the proceedings dismissed on the ground that he cannot possibly have avoided tax if he did not receive any income, which is a fact he alleged the Commissioner admitted. It is not necessary to physically receive income to be affected by a tax avoidance arrangement. Whether the disputant was so affected can only be determined after the evidence is heard. Not appealed.

Orders for discovery

22 January 2008

TRA decision number 03/08

General discovery by each party was ordered but confined to a particular forestry partnership. Not appealed.

Judicial review

27 February 2008

Gary James Christieson v The Commissioner of Inland Revenue

The taxpayer failed to file income tax returns with his NOPA in response to a default assessment, as a result the Commissioner rejected the taxpayer's NOPA. The taxpayer considered the Commissioner's decision to reject the NOPA was unreasonable and therefore commenced Judicial Review proceedings in the High Court. Not appealed.

Demand is not of substantial assistance in determining whether money is payable under the Unclaimed Money Act 1971

3 November 2008

Westpac Banking Corporation, Bank of New Zealand and ANZ National Bank Limited v CIR

The taxpayers sought declarations that certain specified categories of money or obligations in relation to foreign drafts and New Zealand currency bank cheques are not "unclaimed money" in terms of the UMA. The Court upheld the Commissioner's counterclaim and contended that the amounts payable by the banks pursuant to the unpresented bank drafts and bank cheques are "unclaimed money" within the meaning of section4(1)(e) of the UMA. Not appealed.

Commissioner entitled to use section 19 during the dispute resolution process

25 January 2008

Gerald Malcolm Foxley and Anor v The Commissioner of Inland Revenue

The section 19 enquiry was convened for the proper purpose of assessing the taxpayers' tax liability. The Commissioner may use his section 19 power after the commencement of the dispute resolution process. Not appealed.

Commissioner entitled to recover interest and outstanding taxes

12 February 2008

The Commissioner of Inland Revenue v Ron West Motors (Otahuhu) Limited

Commissioner able to recover interest on a sum paid into Court and company ordered to pay balance of the tax debt otherwise it would be liquidated. The interest sum did not have to be applied to the outstanding debt. Not appealed.


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