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Case notes 2012

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

Taxation Review Authority grants an extension of time for service of Points of Objection Notice

23 August 2012

TRA 27/08, 28/08 & 53/08; [2012] NZTRA 06

This Taxation Review Authority ("TRA") decision was concerned with whether extensions of time for service should be granted for Points of Objection Notices issued by a tax agent on behalf of three taxpayers. The Points of Objection Notices were received by the Commissioner of Inland Revenue outside the statutory time period prescribed by regulation 21(1) of the Taxation Review Authorities Regulations 1998 ("TRA Regulations"). The TRA granted an extension of time for service to two of the taxpayers and declined the application of the third taxpayer.

Not Appealed

Guideline for an increase in costs is only a guideline, not a rule

20 December 2012

Sovereign Assurance Company Ltd and Others v Commissioner of Inland Revenue

The Plaintiff objected to the Commissioner of Inland Revenue’s claim for increased costs for trial preparation and for disbursements, including expert witness fees, on the basis that the increased costs were significantly more than the "rule of thumb" (no more than 50% over the scale) and that the Commissioner's expert fees were excessive. The Court disagreed and upheld the majority of the Commissioner’s claim for increased costs and allowed for full disbursements incurred by the Commissioner.

Not Appealed

Debtor-initiated payments

28 November 2012

Stiassny & Others v Commissioner of Inland Revenue

The Supreme Court considered the issues of debtor-initiated payments under section 95 of the Personal Property Securities Act 1999 ("PPSA") and how such payments effected priorities and claims in restitution for payments made by mistake. The Supreme Court found that not only had the Commissioner of Inland Revenue ("the Commissioner") provided good consideration, but that she had also acted in good faith in receiving payment of the goods and services tax ("GST") from the receivers. The Supreme Court dismissed the appellants’ appeal.

No Right of Appeal exists. Final Decision

Setting aside a judgment

9 November 2012

Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd

The High Court has no power to recall or set aside its judgment on questions of law that have been the subject of appellate decision.

No Right of Appeal exists. Final Decision

No merit in "slip rule" appeal

23 October 2012

NTH Douglas & Others v Commissioner of Inland Revenue

The Court of Appeal considered the appeal by the appellants from the High Court decision not to invoke rule11.10 of the High Court rules had no merit and accordingly dismissed the appeal.

Not Appealed

Commissioner successful in her strike-out application

19 September 2012

TRA 40/10 [2012] NZTRA 09

The Commissioner was successful in having the disputant's claim struck out. The disputants may seek leave from the Taxation Review Authority ("TRA") to file an amended claim disputing the correctness of the Commissioner's assessments.

Not Appealed

Commissioner awarded indemnity costs

14 September 2012

Commissioner of Inland Revenue v Accent Management Limited (and others) and Garry Albert Muir

The Commissioner was awarded indemnity costs on the basis that some of the Trinity investors acted vexatiously, frivolously, improperly, or unnecessarily in commencing and continuing with their unsuccessful application to debar Crown Law from acting for the Commissioner.

Appealed

Tax avoidance - fraud on a person affected by the arrangement

11 September 2012

TRA 011/10

The Commissioner is not required to satisfy herself that the taxpayer is fully aware of all aspects of an arrangement or that the taxpayer has not been the victim of fraud by a third party in relation to an arrangement to apply the general anti-avoidance rule.

Appealed

Section 16 - Commissioner's powers to obtain information

7 September 2012

Tauber & Others v Commissioner of Inland Revenue

This was an appeal of a High Court decision which dismissed a judicial review application by the appellants, challenging the issuance and execution of section 16 warrants and seeking orders for the Commissioner to not inspect and return the documents seized. The Court of Appeal upheld the High Court decision and found the Commissioner's application for the access warrants for private dwellings and removal and retention of documents lawful and reasonable.

Not Appealed

Costs reduced due to arithmetical error

30 August 2012

Chesterfields Preschools Limited & Others v Commissioner of Inland Revenue

On 29 June 2012, the High Court ordered a total of $261,089.20 in costs to the plaintiff and reserved leave for applications for additional disbursements, to correct arithmetical mistakes or to pursue arguments on the case management conference costs. The Commissioner applied to the court to correct arithmetical mistakes in the Judgment.

Appealed

Conducting a taxable activity

28 August 2012

A Taxpayer v Commissioner of Inland Revenue

The Commissioner determined that the taxpayer was not conducting a taxable activity, because the activity undertaken in relation to the disputant's property was insufficient to constitute a taxable activity in itself, and there was insufficient evidence of any activity in relation to the disputant's asserted intent to undertake further developments. The Commissioner therefore considered that the disputant should have its goods and services tax (GST) registration cancelled pursuant to sections 52(5) and 52(5A) of the Goods and Services Tax Act 1985. The disputant challenged the Commissioner's decision by filing challenge proceedings in the Taxation Review Authority ("TRA").

Not Appealed

The Supreme Court dismisses Mr Russell's application for leave to appeal

13 August 2012

John George Russell v Commissioner of Inland Revenue

The Supreme Court has dismissed Mr Russell’s application for Leave to Appeal the decision of the Court of Appeal.

No Right of Appeal exists

Consideration of the "evidence exclusion" rule

13 August 2012

Te Akau Stallion Syndicate No 1 v Commissioner of Inland Revenue

The taxpayer sought to strike out certain pleadings in the Commissioner of Inland Revenue’s ("the Commissioner") Statement of Defence. The Commissioner successfully opposed the strike-out application primarily relying on the "evidence exclusion" rule in section 138G of the Tax Administration Act 1994 ("TAA").

Not Appealed

No taxable activity

10 August 2012

Taxpayer Ltd (in receivership) v Commissioner of Inland Revenue [2012] NZTRA 05

The taxpayer objected to its input credit claims being disallowed and being deregistered for goods and services tax (GST). The taxpayer did not prove it had a taxable activity and its other grounds of objection (sham, onus on the Commissioner, bad faith and malicious harassment) were all rejected.

Not Appealed

No taxable activity

10 August 2012

Taxpayer Ltd (in receivership) v Commissioner of Inland Revenue [2012] NZTRA 04

The taxpayer objected to its input credit claims being disallowed and being deregistered for goods and services tax (GST). The taxpayer did not prove it had a taxable activity and its other grounds of objection (sham, onus on the Commissioner, bad faith and malicious harassment) were all rejected.

Not Appealed

Exercise of Court discretion to liquidate insolvent trustee company

6 August 2012

Commissioner of Inland Revenue v Newmarket Trustees Limited

The Court of Appeal held that the Associate High Court Judge had exercised his discretion under section 241(4) of the Companies Act 1993 ("the Companies Act") on an erroneous basis. He overlooked the wider public interest considerations and well-established principles of trustee law, which meant that as a matter of principle, the respondent, as an insolvent trustee company, ought to have been put into liquidation.

Not Appealed

Accrual rules - applied to reinsurance treaties

19 July 2012

Sovereign Assurance Company Limited & Others v Commissioner of Inland Revenue

The plaintiffs challenged the Commissioner's assessments made following completion of the disputes process. The plaintiffs had treated the cash flows in their tax returns on the basis that refundable commissions were assessable income and commission repayments were deductible expenditure. The High Court confirmed the Commissioner's position that the commission arrangements were to be considered separately from other components of the money flows under the applicable treaties. As such, the commission arrangements constituted a financial arrangement for the purposes of the accrual rules. The accrual rules required the commission repayments to be spread over the relevant period with refundable commissions being netted off against the commission repayments, and only the sums attributable to the interest debited to the bonus account remained and could be deductible by the plaintiffs.

Appealed

Strike out declined

19 July 2012

Chesterfield Preschools Limited & Others v the Commissioner of Inland Revenue & Others

The plaintiffs claimed that the Commissioner had failed to act on a Notice of Proposed Adjustment ("NOPA") they issued in response to a memorandum of decision issued to them by the Commissioner. The alleged NOPA was issued at a time when several other proceedings involving the same issues were being reviewed by the Courts. The Commissioner applied for strike out on the grounds of abuse of process and no reasonable cause of action. The strike-out application was dismissed.

Not Appealed

Approved issuer levy and withholding taxes - High Court dismisses appeal and allows Commissioner's cross-appeal on shortfall penalty

7 December 2012

Vinelight Nominees Limited and Weyand Investments Limited v Commissioner of Inland Revenue

PENDING

Statement of position response period

10 July 2012

[2012] NZTRA 03

The disputant issued his Statement of Position ("SOP") on 20 November 2009. The Commissioner issued his SOP via fax on the last date of the response period, 19 January 2010, at 11.07 pm and also posted it at 11.25 pm. The disputant contended the High Court Rules applied to the dispute and that the Commissioner's SOP being issued after 5 pm was out of time.

Appealed

Rental property partnership a business

9 July 2012

[2012] NZTRA 02

The disputant owned several rental properties in a partnership, which was operating at a net loss. The losses were offset against other income, which increased her entitlement to Working for Families Tax Credits (WfFTC). Despite the losses, the rental properties were found to be a business because they were an undertaking for making a pecuniary profit. The losses could not therefore be offset against other income for WfFTC purposes.

Not Appealed

Onus on taxpayer

2 July 2012

[2012] NZTRA 01

The disputant conducted a property development business, operated companies, sold cars and had boarders. He failed to register for goods and services tax (GST) or to return the relevant income. Assessments were made by the Commissioner after a review of his bank accounts was undertaken. The disputant later attempted to claim GST for expenditure incurred but he had no invoices. He also claimed some of the money in the bank accounts was from re-banking. It was found that the re-assessment by the Commissioner using the information available was the most reliable. Some extra expenditure was allowed but generally the disputant had failed to prove the extra expenditure, to show that money paid into the bank was not income or to provide evidence or tax invoices which would allow him to claim GST input tax credits.

Not Appealed

Application for Crown Law to cease to act for Commissioner on trinity matters

22 June 2012

Commissioner of Inland Revenue v Accent Management Limited (and others) and Garry Albert Muir

An application by various taxpayers to prevent Crown Law from acting for the Commissioner of Inland Revenue in certain proceedings related to the Trinity scheme was dismissed. The High Court considered that the application had no relevance to the proceedings and no arguable factual foundation.

Appealed

Sufficient argument to decline strike-out

12 June 2012

Chesterfield Preschools Limited & Others v the Commissioner of Inland Revenue & Others

A review of an earlier decision not to strike out a misfeasance claim against the Commissioner and others resulted in the strike-out again being declined. It was held that it was arguable the Commissioner can be liable for the tort of misfeasance; a failure to act can be misfeasance; and that the cause of action against a Crown Solicitor who had given advice should be allowed.

Appealed

Abuse of process

22 May 2012

HH Jiao, HH Wu and SC Chiao as Trustees of the Harsono Family Trust v Commissioner of Inland Revenue

The plaintiff appealed to the High Court on the basis that the District Court had erred in its decision to strike out the plaintiff's claim. The plaintiff made submissions on taxable activity, output tax and money had and received. The High Court dismissed the appeal and held that the proceedings were frivolous, vexatious, and an abuse of process. The Court held that it was simply an attempt to re-litigate matters that had already been disposed of by the lower courts.

Appealed

Supreme Court considers the application of sections 52(1) and (2) of the Goods and Services Tax Act 1985

10 May 2012

Lewis Gaire Herdman Thompson v Commissioner of Inland Revenue

Upon an appeal from the Court of Appeal, the Supreme Court was required to consider the dates of deregistration following three sale transactions; the Lopas decision; and the wording of section 52 of the Goods and Services Tax 1985 ("GST Act"). The Court held that the rental income following the sales showed an on-going supply and therefore the de-registration dates must be according to the Commissioner's assessments. The Court further looked at the Lopas decision of relevance and confirmed that the statutory language must govern any other interpretation. The Court further provided a test under section 52 that deregistration depends on the Commissioner being "satisfied" that taxable supplies for the following 12-month period were not going to exceed the threshold.

No further Appeal required

Judicial review - not an extremely rare case

16 April 2012

Ali & Fa'agutu v Commissioner of Inland Revenue

The plaintiffs alleged the Commissioner's assessments were not genuine assessments and sought judicial review. The High Court confirmed that the Supreme Court decision in Tannadyce Investments Limited v Commissioner of Inland Revenue [2011] NZSC 158 has made it clear that section 109 of the Tax Administration Act 1994 ("TAA") is a complete bar to judicial review proceedings seeking to overturn the Commissioner's assessments unless the claim can come within the category of rare cases where it is not practically possible for a taxpayer to attack an assessment under the disputes and challenge procedures. The Supreme Court had observed that this would be extremely rare.

Not Appealed

Court of Appeal confirms Commissioner's broad powers of reconstruction

3 April 2012

John George Russell v Commissioner of Inland Revenue

This case was an appeal from the High Court, which found the arrangements had the purpose and effect of tax avoidance. The Court of Appeal upheld the High Court judgment and further added that the overall scheme was the means by which the profits were laundered, together with other related income without paying income tax. Accordingly, the Court of Appeal concluded that the income is to be attributed to Mr Russell because he was the governing mind of the template arrangements, which were designed to shelter the income earned.

Appealed

Receivers obliged to pay GST on mortgagee sales

30 March 2012

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

This case was an appeal from the High Court which had found the receivers were personally liable for goods and services tax ("GST") payable by Capital & Merchants Investments Ltd (in receivership) ("CMI") in relation to five mortgagee sales. The Court of Appeal held that the receivers do not have "personal liability" for the payment to the Commissioner of Inland Revenue of GST payable by CMI but are obliged as receivers of CMI to pay GST to the Commissioner.

Leave to Appeal filed

Debtor-initiated payments

15 March 2012

Stiassny & Ors v Commissioner of Inland Revenue

The Court of Appeal considered the issues of debtor-initiated payments under section 95 of the Personal Property Securities Act 1999 ("PPSA") and how such payments effected priorities and claims in restitution for payments made by mistake. The Court of Appeal found that not only had the Commissioner of Inland Revenue ("the Commissioner") provided good consideration, but he had also acted in good faith in receiving payment of goods and services tax ("GST") from the receivers. The Court of Appeal dismissed the Appellants' appeal.

Appealed

Orders setting aside dispositions of property made under section 348 of the Property Law Act 2007

16 March 2012

Commissioner of Inland Revenue v Ly & Ors

The properties were disposed of without a reasonably equivalent value being received in exchange and as a consequence the debtors became insolvent. The dispositions were also made with the intent to prejudice the Commissioner of Inland Revenue as a creditor, and had the effect of hindering or delaying the Commissioner's recourse to those properties to satisfy the debt.

Not Appealed

Claim must provide clarity as required

9 March 2012

Chesterfields Preschools Limited & Ors v Commissioner of Inland Revenue

The Court decided that to consider the strike-out application, the case must be re-pleaded to provide clarity of issues and claim.

Not Appealed

Leave given to determine appeal

29 February 2012

Commissioner of Inland Revenue v Redcliffe Forestry Venture Limited & Ors

The Commissioner sought leave to appeal to the Supreme Court following the Court of Appeal decision that the taxpayers should now be able to amend their pleadings, put forward what they allege as probative evidence of fraud and argue their repleaded case.

No right of Appeal exists

Court's earlier decision confirmed

29 February 2012

Clarence John Faloon v Commissioner of Inland Revenue

Mr Faloon ("the appellant") sought review of a decision of an Associate Judge, wherein that Associate Judge made an order striking out the appellant's pleading and dismissed the proceeding before him. The appellant's case was that the respondent made a statement in a letter to the appellant that equates to a "disputable decision" for the purposes of the Tax Administration Act 1994 ("TAA") and he sought to challenge that decision accordingly.

Not Appealed

Court of Appeal denies automatic right of appeal

22 February 2012

Heather Anne Jacobs v Commissioner of Inland Revenue

The appellant (Ms Jacobs) did not have an automatic right of appeal to the Court of Appeal (as her Taxation Review Authority (TRA) proceeding did not amount to a challenge) and therefore the Court of Appeal did not have jurisdiction to entertain her appeal. Leave of the High Court needed to be sought.

Not Appealed

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