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Case notes 2011

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

Judicial review struck out

20 December 2011

Tannadyce Investments Limited v Commissioner of Inland Revenue

The Supreme Court held that only in exceptional cases can a judicial review be permitted to reverse tax assessments. Not Appealed

Judicial review of Commissioner's refusal to accept amended GST returns

15 December 2011

FB Duvall Limited & Ors v Commissioner of Inland Revenue

The Court ordered the Commissioner of Inland Revenue to reconsider his decision to not allow the taxpayers to amend their GST returns to exclude previously returned output tax and therefore obtain a GST refund. Not Appealed

Appropriate course for dealing with an allegation that the High Court was functus officio

14 December 2011

Redcliffe Forestry Venture Limited & Ors v Commissioner of Inland Revenue

This decision concerned the appropriate course to take when the High Court is confronted with an allegation that the High Court was functus officio and thus lacked the jurisdiction to hear and determine the proceedings. Appealed

Optional convertible notes can be tax avoidance arrangements

12 December 2011

Alesco New Zealand Ltd and Ors v Commissioner of Inland Revenue

The Court held that the use of particular optional convertible notes (OCNs) was a tax avoidance arrangement because the arrangement was an artificial device and it was not within Parliamentary contemplation. Appealed

Application for leave to appeal to Supreme Court by administrator dismissed

30 November 2011

Damien Grant & Steven Khov v Commissioner of Inland Revenue

The Supreme Court confirmed that a casting vote in voluntary administrations can only be used to break a deadlock in number.

Freezing orders against third party

16 November 2011

Commissioner of Inland Revenue v Giovanni Holdings Ltd and Ors

The Court considered that the freezing order could not be upheld without more evidence and an undertaking by the Commissioner. Appealed

Claim simply untenable

10 November 2011

The Harsono Family Trust v Commissioner of Inland Revenue

The Court had no jurisdiction to consider the Harsono Family Trust's ("HFT") claim, nor was it tenable. Furthermore, the claim brought by HFT against the Commissioner of Inland Revenue was found to be an abuse of process because HFT deliberately attempted to misconstrue the true nature of the payment. Appealed

Abuse of court process to re-litigate misconceived cases

8 November 2011

Clarence John Faloon v Commissioner of Inland Revenue

Since the taxpayer's proceeding was of the same nature as others that have been unsuccessful it was found to be abuse of court process. Not Appealed

No deemed acceptance of a late NOPA

25 October 2011

Heather Anne Jacobs-Maxwell v Commissioner of Inland Revenue

The usual dispute resolution procedures under Part 4A of the Tax Administration Act 1994 ("TAA") (including deemed acceptance under section 89H(2)) do not apply to a late Notice of Proposed Adjustment (NOPA) where no "exceptional circumstance" is raised in accordance with section 89K. Appealed

Whether sale of property was of tenanted property or shares

21 October 2011

Tepe Holdings Ltd v Commissioner of Inland Revenue

The Court of Appeal rejected an appeal against the decision of the High Court that the sale of the property by the taxpayer was a sale of shares. Appealed

Voting interest requires registered shareholding

7 October 2011

BHL v Commissioner of Inland Revenue

The group loss offset provisions require that for a person to have a voting interest, their shares must be registered on the company's share register. Appeal abandoned

Calderbank offer and costs

5 October 2011

Junior Farms Ltd v Commissioner of Inland Revenue

A taxpayer's application for increased costs based on its Calderbank offer failed because its rejection was justified. Not Appealed

Commissioner's decision to decline instalment arrangement upheld

3 October 2011

Priscilla Anne Kea v Commissioner of Inland Revenue

The Court held that it would have been wrong for it to grant a remedy to the plaintiff (even if a reviewable error had been made) because the plaintiff misrepresented her position and the facts upon which the instalment arrangement proposal relied were no longer applicable. The Court further held that the Commissioner had taken into account relevant factors and that his decision to decline the plaintiff's instalment arrangement proposal was not unreasonable or irrational. Not Appealed

Determination of tax residency

30 September 2011

W v Commissioner of Inland Revenue

The Taxation Review Authority (TRA) determined that the taxpayer who had been working in Fiji for about four years was a tax resident of New Zealand. Not Appealed

Judicial review application dismissed

29 September 2011

Hanh Duc Nguyen v Commissioner of Inland Revenue

The High Court dismissed the taxpayer's judicial review proceedings as the taxpayer failed to show that when making the default assessments the Commissioner could not have exercised a genuine and honest judgment, and that the Commissioner erred in considering the exercise of his discretionary powers to amend the assessments under section 113 of the Tax Administration Act 1994 ("TAA"). Not Appealed

Commissioner unsuccessful against appeal of his strike-out application

28 September 2011

John David Hardie v Commissioner of Inland Revenue

The Court of Appeal allowed the appeal by Mr Hardie and the order striking out the application for judicial review by the High Court was set aside.

Taxpayer's attempt to consolidate two separate proceedings fails

16 September 2011

Yandina Investments Limited v Commissioner of Inland Revenue

The taxpayer sought to consolidate (into a single hearing) two separate matters, a tax matter and the taxpayer's attempt to recover funds from a third party. The High Court declined to order the consolidation. Not Appealed

Taxpayer's application for leave to appeal to the Supreme Court declined

26 August 2011

J G Russell v TRA & Commissioner of Inland Revenue

The taxpayer was declined leave to appeal to the Supreme Court as any potential bias had been cured - on these facts - by the taxpayer's exercise of appeal rights from the allegedly biased judicial officer at the Taxation Review Authority (TRA).

Supreme Court finds income diversion to be avoidance

24 August 2011

Penny and Hooper v Commissioner of Inland Revenue

Two surgeons who used companies and trusts to divert what was previously personal income were held by the Supreme Court to have avoided tax under section BG 1 of the Income Tax Act 1994 ("ITA"). The structures they used were of themselves legitimate, but they were used in conjunction with artificially low salaries, paid to the surgeons personally, which amounted to tax avoidance. No right of appeal exists

GST deregistration issue to be heard by the Supreme Court

22 August 2011

Lewis Gaire Herdman Thompson v Commissioner of Inland Revenue

The Supreme Court has granted the appellant leave to appeal. No right of Appeal exists

Court of Appeal finds in favour of the Commissioner with regard to application of casting votes at a watershed meeting

15 August 2011

Damien Grant & Steven Khov v Commissioner of Inland Revenue

A casting vote can only be used to break a deadlock between a number of creditors for or against a Deed of Company Arrangement ("DOCA"). It cannot be used to overcome a shortfall in support from the creditors representing 75% of the company's total debt. Furthermore any DOCA which does not take into account the Commissioner's preferential debt in liquidation may be terminated by the Courts. Application for Leave to Appeal filed

Access operations judicial review

12 August 2011

Tauber & Ors v Commissioner of Inland Revenue

Judicial review proceedings were filed by the applicants challenging the lawfulness and reasonableness of search and seizure operations undertaken by the Commissioner, pursuant to section 16 of the Tax Administration Act 1994 ("TAA"), on a number of business premises and private residences. Case under Appeal

Commissioner's strike-out application partially successful

5 August 2011

Chesterfields et al v Commissioner of Inland Revenue

The Commissioner was only successful in part in attempting to strike out the taxpayer's claim of misfeasance in public office by the Commissioner. Appealed

Approved issuer levy structure found to be tax avoidance

5 August 2011

VI Limited and WI Limited v Commissioner of Inland Revenue

Taxpayer WI Limited ("WIL") is a Hong Kong resident company. It incorporated a company VI Limited ("VIL") in New Zealand. WIL made substantial loans to VIL which were converted to redeemable preference shares in VIL. The Commissioner asserted that WIL was a New Zealand tax resident and accordingly should have resident withholding tax (RWT) as opposed to payment of an approved issuer levy (AIL). The Commissioner also asserted that the structure had a purpose or effect of avoiding non-resident withholding tax (NRWT) as tax avoidance. The Taxation Review Authority (TRA) found in favour of the Commissioner on issues 1 to 4 but concluded that a shortfall penalty did not apply. Case under Appeal

Wide-ranging discovery ordered

28 July 2011

Commissioner of Inland Revenue v Giovanni Holdings Ltd and Ors

The Commissioner was unsuccessful in opposing an application for discovery where he maintained that tax secrecy, public interest immunity or administrative difficulty would arise if the orders were granted. The Court held that these were matters for the Court, not the Commissioner, to decide. Appealed

Judicial review of tax credit claim disallowed

26 July 2011

Irene Yeh Leng Goh v Commissioner of Inland Revenue

A taxpayer's claim of tax credit against the Commissioner resulting from tax paid on compensation by the Accident Compensation Corporation ("ACC") was struck out for being untenable and for abuse of process. Not Appealed

A buy-back of part of a property is not "acquisition" under section CD 1(2)(a)

22 July 2011

Junior Farms Ltd v Commissioner of Inland Revenue

The Court held that a sale arrangement of the property which included a buy-back of part of it for resale was not an "acquisition" for purposes of section CD 1(2)(a) of the Income Tax Act 1994. Not Appealed

Court declines leave to amend claim after judgment delivered

11 July 2011

Dunphy & Ors v Commissioner of Inland Revenue

An applicant unsuccessfully applied for leave to amend his claim after the judgment granting judicial review had been delivered and after the applicant and the Commissioner had settled all matters in relation to the proceeding. Not Appealed

Court declines to use the "slip rule"

8 July 2011

NTH Douglas and Others v Commissioner of Inland Revenue

Justice Courtney considered the purpose of the “slip rule” was to correct errors but that it was not to be lightly invoked as it would weaken the finality of a judgment and was not used in this instance. No right of Appeal exists

Commissioner granted leave to appeal trustee company liquidation case

23 June 2011

Commissioner of Inland Revenue v Newmarket Trustees Ltd (application for leave to appeal)

The Commissioner successfully applied to the Court of Appeal for an extension of time to appeal a decision by the High Court not to liquidate Newmarket Trustees Limited, a trustee company. Case under Appeal

Application for recall of TRA decision

16 June 2011

TRA 42/03, 105/04, 23/05, 54/05 and 38/07 [2011] NZTRA 6

The disputant was not successful in the recall application. Due to an appeal having being lodged by the disputant, the Taxation Review Authority "TRA" is functus officio. Further, the decision relied upon by the disputant to justify the recall application was irrelevant. Case under Appeal

Receivers liable to return and pay GST on mortgagee sale

17 May 2011

Simpson and Downes as receivers of Capital + Merchants Investments Ltd (in receivership) v Commissioner of Inland Revenue

Messrs Simpson and Downes, as receivers of Capital + Merchants Investments Ltd (in receivership), were personally liable to account to the Commissioner for the output tax on mortgagee sales. Case under Appeal

Exceptional circumstances examined by the Taxation Review Authority

28 April 2011

TRA 27/08; TRA 28/08; TRA 53/08 [2011] NZTRA 05

The Taxation Review Authority ("TRA") considered there were arguable exceptional circumstances that existed in respect of late served Points of Objection Notices but sought further evidence prior to deciding the application for an extension of time. Case under Appeal

Bias appeal dismissed on the basis of cause of action estoppel

19 April 2011

John George Russell v Commissioner of Inland Revenue

An appeal from the High Court for judicial review of the Taxation Review Authority has been dismissed on the basis of cause of action estoppel and any possible bias was cured by the appeal of the substantive case to the High Court. Case under Appeal to the Supreme Court

Commissioner's application of the serious hardship provisions upheld by the Court of Appeal

19 April 2011

Jillian Claire Larmer v Commissioner of Inland Revenue

The appeal failed as the Court of Appeal found that the Commissioner correctly applied section 177 of the Tax Administration Act 1994 ("TAA") and contrary to the argument by the taxpayer, had considered the most recent information available to him in applying section 177. Not Appealed

Valid timely NOPA a prerequisite to deemed acceptance

11 April 2011

TRA 37/09 [2011] NZTRA 04

There was no acceptance of the disputant's late Notice of Proposed Adjustment ("NOPA") because a valid timely NOPA is a prerequisite to deemed acceptance and the Commissioner had not agreed to accept the disputant's late NOPA.Case under Appeal- Hearing 26 August 2011

Unclaimed money payable to Commissioner

7 April 2011

Westpac, BNZ & ANZ v Commissioner of Inland Revenue (unclaimed money)

The Supreme Court has followed the Privy Council decision in Thomas Cook (New Zealand) Ltd and held that unclaimed foreign exchange drafts and bank cheques are to pass to the Commissioner as custodian six years after legal demand may be made for payment to the payee. It is now clear that bank cheques and foreign currency drafts which remain unclaimed will be treated as unclaimed money under the Unclaimed Money Act 1971. No Appeal right exists

Court of Appeal dismisses taxpayer's appeal in relation to an entitlement to de-register from GST

5 April 2011

Lewis Gaire Herdman Thompson v Commissioner of Inland Revenue

The Court of Appeal upheld the High Court's decision that the Commissioner was required to make output tax credit adjustments to the Taxpayer's GST returns in the relevant GST return periods. Case under Appeal – Leave granted by Supreme Court

Courier did not buy going concern

5 April 2011

TRA 19/10 [2011] NZTRA 3

A courier did not buy a going concern as the vendor could not supply a going concern. This case turned on the finding that the vendor did not have a contract with the company (MF) capable of being assigned to the disputant. Without that contract there could be no going concern. No Appeal right exists

Commissioner's evasion assessments upheld

24 March 2011

G J Lupton v Commissioner of Inland Revenue

The plaintiff was unable to prove that various amounts paid into bank accounts which he controlled were not his income. The Commissioner of Inland Revenue established that the plaintiff was liable for evasion shortfall penalties. Not appealed

High Court finds in favour of retrospective departure orders

16 March 2011

B v X & Commissioner of Inland Revenue

The non-custodial parent had appealed the findings of the Family Court awarding a departure order from formula assessment in favour of the custodial parent. The non-custodial parent appealed on a number of grounds. The reason the Commissioner intervened in this matter was primarily because of one ground whereby the non-custodial parent argued that there is no jurisdiction for the Commissioner to make retrospective departure orders. Case under Appeal

Persistent litigant discouraged

7 March 2011

Clarence John Faloon v Commissioner of Inland Revenue

A number of interlocutory applications which attempted to re-open finalised decisions were dismissed by the Court. The decision is further confirmation of the approach the Court will take to persistent re-litigation of previously decided and/or unmeritorious matters. Not appealed

Further and better discovery

4 February 2011

Beacham Holdings Ltd v Commissioner of Inland Revenue

The Court upheld the Commissioner's complaint that the plaintiff, in its discovery affidavit, had failed to provide sufficient particulars of the steps taken in relation to obtaining potentially relevant documents. As well, the Court ordered the plaintiff to list individually the documents for which it claimed privilege. Not appealed.

A further Trinity argument estopped

1 February 2011

XX v CIR

It was held the assessments made were not prohibited due to the effect of section 114 of the Tax Administration Act 1994 ("TAA"). Furthermore, the assessments were valid due to the presumption of validity and even if there was a technical error, the Taxation Review Authority ("TRA") had jurisdiction to consider the challenge to the assessments.

Deductibility of share losses

25 January 2011

TRA 37/08

The partnership invested in shares overseas and eventually lost all that was invested. The partnership claimed the loss and the partners to the partnership each claimed the deduction. The Commissioner denied the claim. The Taxation Review Authority ("TRA") found the expenditure was on revenue account and deductible. Not appealed.

 

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