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Case notes 2009

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

High Court finds no reviewable error made by Commissioner

11 December 2009

Larmer v Commissioner of Inland Revenue

The judicial review proceeding failed as the High Court found that the Commissioner's decision was focused on the correct and appropriate statutory test and no error of law was demonstrated. Not appealed.

Non-party inspection of court records and documents

2 December 2009

BNZ Investments Ltd & Ors v the Commissioner of Inland Revenue

The High Court granted an application by a non-party to search, inspect and copy statements and transcripts of evidence given by witnesses in the BNZ structured finance case. Not appealed.

Taxpayers refused leave to appeal to Supreme Court

8 December 2009

Chesterfields Preschools Ltd & Ors v the Commissioner of Inland Revenue

The taxpayers were refused leave to appeal to the Supreme Court on an interlocutory ruling of the Court of Appeal as they failed to demonstrate the appeal was necessary in the interest of justice. Appealed.

Invalid asset transfers were in reality loans

16 December 2009

Commissioner of Inland Revenue v Allen, Palmer and Silver Fern Trustees Limited

There were loans owing from Silver Fern Trustees Ltd to Allen and Palmer. Certain assets were to be recorded as assets of Silver Fern Trustees Ltd and the Commissioner was directed to prepare amended financial statements for Silver Fern Trustees Ltd. Not appealed.

No "public importance"; leave denied

15 December 2009

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

The Supreme Court refused the applicants leave to appeal, there being no point of law that was of general or public importance, or of commercial significance. The decision confirms that "public importance" is a crucial factor in the grant of leave. Appealed.

GST refunds and section 46 of the Goods and Services Tax Act 1985

4 December 2009

The Commissioner of Inland Revenue v Contract Pacific Limited

The Commissioner had satisfied his obligations under section 46 of the Goods and Services Tax Act 1985 when he issued an investigation notice within the prescribed time limits in section 46(5). Appealed.

Commissioner not restrained from advertising liquidation proceedings

Oral judgement 1 December 2009

The Commissioner of Inland Revenue v Property Ventures Investments Limited & Ors

The companies unsuccessfully applied to restrain the Commissioner from advertising his liquidation proceedings.The decision is an application of corporate insolvency jurisprudence to the 1993 Companies Act. Of interest is the reaffirmation of the principle that creditors' statutory rights and the "wider public interest" are paramount in liquidation proceedings. Not appealed.

GST payable on airport development levy

12 November 2009

Rotorua Regional Airport Limited v Commissioner of Inland Revenue

The Court held that the development levy that the airport charged to departing passengers was consideration for the use of airport facilities, and therefore the airport was required to account for goods and services tax ("GST") on the levy. Not appealed.

Tax on MSD benefit disallowed

11 November 2009 oral decision

Irene Yeh Leng Goh v the Commissioner of Inland Revenue

An application for judicial review of a decision of the Commissioner was struck out. The decision related to tax payments made by the Accident Compensation Corporation ("ACC"), reimbursing certain previously paid benefits. The Court reinforced the fact that the procedures in the Tax Administration Act ("TAA") are the only way to challenge an assessment in the majority of cases. Not appealed.

Judge not disqualified from hearing application to set aside his earlier judgment

2 December 2009

Redcliffe Forestry Venture Limited & Ors v Commissioner of Inland Revenue (Trinity)

The plaintiffs' application to revisit an administrative decision of the List Judge to assign Venning J to this case was unsuccessful. The plaintiffs argued that Venning J should be disqualified from hearing their application to set aside his earlier judgment on the basis of his prior involvement. Not appealed.

Second High Court decision confirms structured finance transactions as tax avoidance

7 October 2009

Westpac Banking Corporation v Commissioner of Inland Revenue

Between 1998 and 2000 Westpac entered into a number of structured finance transactions with foreign counterparties. The Commissioner considered the transactions constituted tax avoidance, and issued amended assessments to Westpac. The High Court upheld the Commissioner's assessments. Not appealed.

Backdated ACC compensation not double taxed

30 October 2009

Claire Avon Hollis v the Commissioner of Inland Revenue

The plaintiff received a taxable income-tested benefit and non-taxable supplementary benefits comprising disability and accommodation allowances from Work and Income New Zealand (now Ministry of Social Development and referred to below for convenience as "MSD") for a period for which she was later determined to be entitled to weekly compensation from the Accident Compensation Corporation ("ACC"). Appealed.

Disposal deemed at market value

28 October 2009

Foodstuffs (Wellington) Co-operative Society Limited v the Commissioner of Inland Revenue

The plaintiff acquired 100% of the shares in a company and amalgamated that company with three others into one unit. As a result of the amalgamation the newly acquired shares were cancelled. The plaintiff claimed as a deduction the purchase price of the shares. The Commissioner disallowed the deduction and deemed the disposal of the shares to be at market value. Not appealed.

Own-home LAQC was tax avoidance arrangement

23 October 2009

TRA Decision No 16/2009

The Court held that because Mrs B rented her residential home from an LAQC in which she was the sole shareholder there was a tax avoidance arrangement. Appealed.

No contempt of Court by Commissioner

14 October 2009

Chesterfields v the Commissioner of Inland Revenue

The Commissioner's use of section 17 notices, while unwise in the circumstances, was not a contempt of Court. Contempt of Court does not protect private rights but is to protect the administration of justice. Not appealed.

Entitlement to deregister from GST and decision on whether or not a sale was planned results in partial win for the Commissioner

21 August 2009

LGH Thompson v Commissioner of Inland Revenue

The Commissioner's assessment which assessed output tax on two property transactions sold in the Goods and Services Tax ("GST") period after the Taxpayer's de-registration was consequently upheld. The third property transaction which the Commissioner had assessed in a later GST period was found incorrect; rather the Court found that the output tax on that property should be returned by the Taxpayer as a deemed disposition in the Taxpayer's unregistered capacity pursuant to section 5(3) of the Goods and Services Tax Act ("the Act"). Appealed.

Challenge to jurisdiction of Taxation Review Authority fails

22 September 2009

J D and CE Henson Partnership & Ors v Commissioner of Inland Revenue

This judgment confirms the existing case law regarding the distinction between assessments and notices of assessment. It reiterates that in accordance with section 114 of the TAA, the Commissioner's failure to comply with procedural requirements of the Revenue Acts will not invalidate an assessment. Appealed.

No right of appeal from Taxation Review Authority's interlocutory decisions

15 September 2009 (Oral Judgment of Venning J)

Jacqueline Jiao, Hsueh W Huang & Shou-Chen Chiao v Commissioner of Inland Revenue

The determination of the Taxation Review Authority ("TRA") can be appealed to the High Court under section 26A of the Taxation Review Authorities Act 1994. However, there is no right of appeal from interlocutory decisions of the TRA. Not appealed.

Reparation and section 109 of the Tax Administration Act 1994

25 September 2009

The Queen v Karl Andre Allan

Mr Allan appealed against his conviction and sentence for aiding and abetting a company to knowingly fail to file a Goods and Services Tax ("GST") return intending to evade the payment of GST. The Court dismissed the appeal against conviction, but upheld the appeal against the amount of reparation that Mr Allan had been ordered to pay to Inland Revenue. Appealed.

Judicial Review action against Commissioner struck out because disputes process not followed

18 September 2009

Raureti Reginald Ruka KORAKO v Commissioner of Inland Revenue

The Commissioner took bankruptcy proceedings against the taxpayer, who then took Judicial Review proceedings against the Commissioner claiming abuse of process with assessments. The High Court struck out the proceedings because the taxpayer did not follow the disputes process in the first instance. Not appealed.

Avoidance arrangement and Commissioner's reconstruction confirmed

17 September 2009

TRA Dec No 15/2009

The Commissioner's assessments based upon section 99 and section BG1 that income was personal income and not earned by business entities was confirmed. Not appealed.

Court of Appeal says Privy Council decision in relation to bank cheques and drafts binding

26 August 2009

Westpac BNZ ANZ v Commissioner of Inland Revenue (Unclaimed Money)

Unless the Supreme Court agrees to hear an appeal and finds otherwise, bank cheques and drafts which remain unclaimed, will be treated as unclaimed money under the UMA. The decision of the Privy Council in CIR v Thomas Cook will apply. Appealed.

Legal expenses non-deductible

20 August 2009

TRA Number 05/08; Decision Number 14/2009

Legal expenses incurred in challenging the differential between the milk payouts to the taxpayers of a merged dairy cooperative were capital in nature and therefore non-deductible. This judgment confirms that whether or not legal expenses are deductible will depend upon the reason for incurring the expense. Appealed.

Application of High Court orders stayed by Court of Appeal

29 August 2009

Commissioner of Inland Revenue v Chesterfields et al

The Commissioner was successful in staying the application of orders made in the High Court pending resolution of his appeal to the Court of Appeal. Appealed.

Commissioner entitled to discovery

27 July 2009

RadioWorks Limited v Commissioner of Inland Revenue; TVWorks Limited v Commissioner of Inland Revenue

This judgment provides a clear and concise summary of the relationship between discovery and the provisions of the Tax Administration Act 1994 ("TAA"). It confirms that the Commissioner is entitled to discovery in tax litigation, notwithstanding his powers under the TAA and the evidence exclusion rule. Not appealed.

No exceptional circumstances to allow a challenge outside the response period

19 June 2009

TRA Decision No 12/2009

The Authority held that a taxpayer may not challenge a decision by the Commissioner to not exercise his discretion in section 113 of the TAA to make an amended assessment; ie a taxpayer may not challenge a decision by the Commissioner to not amend an assessment under section 113 of the TAA. If the Commissioner does make a new assessment under section 113 of the TAA, then the new assessment is amenable to challenge in the usual way notwithstanding section 138(1)(e)(iv) of the TAA. Not appealed.

Director to represent companies in appeal

31 July 2009

Commissioner of Inland Revenue v Chesterfields et al

The Court of Appeal has allowed the director of two companies to represent them in Court, finding the case was an exception to the established rule in the Mannix case. Appealed.

"Structured finance" transactions are tax avoidance arrangements

15 July 2009

BNZ Investments Limited & Ors v Commissioner of Inland Revenue

Six structured finance transactions entered into by BNZ are tax avoidance arrangements and are therefore void as against the Commissioner for income tax purposes. Not appealed.

Decision to impose section HK 11 disputable

15 July 2009

Commissioner of Inland Revenue v Colin Skudder

The Commissioner assessed the director of the company under the provisions of section HK 11 ITA 1994 without first issuing a Notice of Proposed Adjustment ("NOPA"). When debt recovery action was taken, the District Court found that it could not impose judgment on the director because the Commissioner's decision to impose the provision of section HK 11 was subject to dispute in the Taxation Review Authority. Not appealed.

Legal expenditure allowed if meets "principal purpose" test

29 July 2009

Commissioner of Inland Revenue v Trustees in the Mangaheia Trust and Trustees in the Te Mata Property Trust

The High Court found that the trustees of the Mangaheia and Te Mata Property Trusts were entitled to deduct GST input tax credits in relation to legal services acquired for litigation proceedings. Legal services acquired by the trustees were acquired for the principal purpose of making taxable supplies. The High Court also found that the "principal purpose" test has to be met before GST on services and supplies can be claimed as an input tax under section 3A(1)(a) of the Goods and Services Tax Act 1985 ("GST Act"). Appealed.

Relitigated decision of the Authority

11 May 2009

TRA No 029/07 Decision 10/2009

The disputant attempted to relitigate matters already decided by the Authority. The disputant's argument was that he was remunerated inclusive of PAYE. A previous decision of the Authority found the disputant's remuneration excluded PAYE. In this proceeding the Commissioner sought to strike out the disputant's claim on the basis that this matter had already been before the Authority and decided upon by it. Not appealed.

Taxpayer should proceed to challenge proceedings when disputing the validity of a Notice of Response

26 June 2009

Commissioner of Inland Revenue v Alam and Begum

Where an assessment has been issued after the Commissioner has declined to accept a taxpayer's NOR as valid, the taxpayer should proceed to challenge proceedings to dispute the validity of the Notice of Response. Appealed.

Court of Appeal says omission to act can be aiding or abetting

26 June 2009

Neil George Evans v Commissioner of Inland Revenue

The taxpayer appealed against a High Court decision that a director of a company had aided or abetted the company to commit a tax offence (section 148 of the Tax Administration Act). The Court of Appeal upheld the High Court decision and confirmed that an omission by a director to do an act can mean that the director aided the company to offend. Appealed.

High Court considers issue when a dividend is paid

26 May 2009

Commissioner of Inland Revenue v Albany Food Warehouse Ltd

The Court held that crediting a dividend to the shareholders' accounts was sufficient to constitute payment, whether or not those funds were at the disposal of the shareholders. The impact of this judgment is that a credit in a book of account will constitute payment, whether or not the funds have actually been placed at the disposal of the payee. Not appealed.

The creation of a trust gives rise to a gift for gift duty purposes

30 April 2009

Begg, Jackson and Jackson v Commissioner of Inland Revenue

A deed of gift of money secured by a declaration of trust on a home to secure payment of the money in the future is a gift under the Estate and Gift Duties Act 1968. There is no tax implication in this case as each gift was below the exemption level. In the future when the money is actually paid, assuming there is still the same statutory gift duty, there will be no gift duty payable as the money is already gifted. Appealed.

Status of Farnsworth and Zentrum decisions remains unclear

13 May 2009

Ben Nevis Forestry Ventures Limited & Ors v Commissioner of Inland Revenue [2009] NZSC 40

Commissioner’s application for partial recall of Supreme Court decision, to clarify the status of Farnsworth in light of the decision in Zentrum, was refused. The status of the respective decisions remains unclear. The Supreme Court confirmed that it has expressed no view on the correctness of either Farnsworth or Zentrum. Not appealed.

Commissioner allowed to continue investigation

8 May 2009

Avowal Administrative Attorneys Ltd & Ors v The District Court at North Shore & The Commissioner of Inland Revenue

The applicants’ application for a stay of the High Court judgment pending resolution of their appeal was denied. The Commissioner is able to progress his investigation and is also able to pass on information to the Australian Tax Office notwithstanding the appeal of the substantive judgment to the Court of Appeal. Appealed.

Tax advice documents to be discovered

28 April 2009

ANZ National Bank Limited & Others v Commissioner of Inland Revenue

ANZ is required to discover to the Commissioner opinions provided by its tax advisor, Pricewaterhouse Coopers (PwC). The Court of Appeal confirms that tax opinions are relevant and discoverable in tax avoidance cases. The judgment discusses relevance, admissibility and the taxpayers' non-disclosure right in relation to tax avoidance documents. Appealed.

TRA allows deduction for GST input tax on legal services provided in trusts

27 February 2009

TRA Decision Number 06/2009; TRA 67/05 and 70/05

Trustees can claim a deduction for legal fees on a GST input return basis through the trust when the trust is carrying out a taxable activity even if the fees are paid for by a third party. In the absence of an exempt supply or criminal charges outside the scope of normal business activity, GST input tax on legal fees which are incurred in the course or furtherance of a GST registered person's taxable activity will be deductible in full. Not appealed.

Interlocutory application for stay of liquidation proceedings pending judicial review dismissal

20 April 2009

Berrytime Land Limited and Berrytime Limited v Commissioner of Inland Revenue

The High Court dismissed the application for a stay on the basis that the taxpayer's case for establishing "exceptional circumstances" required for judicial review was not strong. The High Court confirmed that judicial review proceedings cannot be used except in exceptional circumstances. Not appealed.

Expenditure must be significantly in connection with determination of assessable income

20 April 2009

TRA Decision Number 08/2009, TRA Number 023/2007

Taxpayer failed to establish that expenditure incurred was significantly in connection with her determined assessable income and therefore were non-deductible under section DJ(5)(a). This decision provides guidance on how section DJ(5)(a) should be interpreted. Not appealed.

Scope of judicial review limited in tax cases

08 April 2009

Westpac v Commissioner of Inland Revenue

The strict judgment by the Court of Appeal is the most recent statement of law on judicial review and the Commissioner. The approach taken by the Court of Appeal was considered not to be reasonably arguable to be wrong by the Supreme Court. This endorses the view taken at the Court of Appeal. Appealed.

Value of gain in kind when calculating FIF income or loss was market value of shares disposed of

13 March 2009

Govind Prasad Saha v Commissioner of Inland Revenue CA 617/2008

Where there is no valuation evidence of the market value of the gain derived in kind but if it is less than the market value of the shares at the time of disposition, this market value must be adopted in accordance with section CG 23(5) of the Income Tax Act 1994 (ITA). Appealed.

The Commissioner is correct not to exercise statutory discretion

24 February 2009

TRA 017/08 Decision 5/2009

The Commissioner was correct not to exercise his discretion at section 141KB to remit a short fall penalty. Limited as section 141KB has since been repealed. Not appealed.

Structured finance taxpayer's appeal dismissed

20 February 2009

Westpac Banking Corporation v Commissioner of Inland Revenue

Taxpayer's appeal from High Court decision to strike out a cause of action dismissed. A useful judgment discussing the role of judicial review in the tax context. The Court of Appeal favoured a narrow approach based upon the statutory provisions (considerable emphasis was placed upon sections 109 and 114 of the Tax Administration Act 1994 (TAA)) and the need for truly exceptional circumstances before any judicial review would be allowed to continue. Appealed.

Taxation Review Authority held relocation drivers are independent contractors and not employees

11 February 2009

TRA Decision 4/2009

The taxpayer engaged drivers to relocate its cars to different places in New Zealand. The taxpayer filed PAYE returns on the basis that the drivers were independent contractors. The Commissioner disagreed. The Tribunal decided that the Commissioner was incorrect and held that the drivers were independent contractors. The usual tests were applied to determine employer/ employee relationship. This case was largely dependent on its facts. Not appealed.

Time of assessment by Commissioner not seen as justification to uphold judicial review

3 February 2009

Amaltal Fishing Company Limited v Commissioner of Inland Revenue

The time of assessment is established by the facts of the case. In order for judicial review to apply, the taxpayer will need to establish exceptional circumstances and provide evidence of the effect on them. The decision confirms the findings in Golden Bay Cement, Miller and Abbattis Properties Limited relating to when an assessment is made. It also confirms the criteria for judicial review after assessment. Not appealed.

Template avoidance scheme assessments confirmed

16 January 2009

TRA Decision Number 1/2009

Tax avoidance template scheme; repetition of arguments already dealt with by the Courts; Commissioner's assessments confirmed. This matter is largely confined to its own facts although it confirms the Commissioner's view of this particular tax avoidance scheme. Not appealed.

Backdated ACC compensation not double taxed

14 January 2009

TRA Decision Number 03/2009

The disputant received a taxable income-tested benefit and non-taxable supplementary benefits comprising disability and accommodation allowances from Work and Income New Zealand (now Ministry of Social Development and referred to below for convenience as "MSD") for a period for which she was later determined to be entitled to weekly compensation from the Accident Compensation Corporation ("ACC").

The dispute between the parties arose out of what took place when the change-over from MSD to ACC as the paying agency occurred and the effect of that for tax purposes in the 2004 income year. Not appealed.

 

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