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Case notes 2015

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

Residency: Interpretation of permanent place of abode

18 December 2015

Commissioner of Inland Revenue v Diamond [2015] NZCA 613

Not Appealed

The Court agreed with the High Court's conclusion on the facts and found that Mr Diamond was not a resident for the relevant years. The Court noted that the relevant property had never been Mr Diamond's home (and was never intended to be): it was never lived in by Mr Diamond and was only ever used as an investment property. The Court did not accept that a place in which Mr Diamond had never lived could constitute a dwelling with which he had enduring and permanent ties.

No jurisdiction where the disputes process has not been completed

17 December 2015

V Ltd v Commissioner of Inland Revenue

No Right of Appeal exists

The disputant sought an order requiring the Commissioner of Inland Revenue (“the Commissioner”) to issue a disclosure notice and statement of position with respect to its Notices of Proposed Adjustment (“NOPAs”) that were part of a dispute progressing through the disputes process. The Taxation Review Authority (“the Authority”) held it is necessary for the disputes process to be completed before challenge proceedings can be filed and so it did not have jurisdiction to hear the application. Further, the jurisdiction of the Authority is found in the Taxation Review Authorities Act 1994, not the District Court Rules 2014. The Authority also found it did not have the power to direct the Commissioner to issue a disclosure notice, and she cannot be compelled to do so. While the Standard Practice Statement may set out what is done “generally” or “usually”, it is only a guideline and there is no obligation on the Commissioner to follow this course.

Liability for PAYE: Were the shares held on bare trust?

17 December 2015

TRA 022/14 [2015] NZTRA 22

Not Appealed

This case was about whether the disputant was liable to pay PAYE on monthly payments made to Mr X. The disputant argued that Mr X was a shareholder of the disputant and therefore the disputant was not required to return the PAYE owing as the monthly payments were not PAYE income payments to Mr X. Deciding whether Mr X was a shareholder of the disputant turned on whether Mr A (sole registered shareholder of the disputant) held shares in the disputant for Mr X on bare trust.

Inconsistent treatment challenge not struck out

10 December 2015

Michael Hill Finance (NZ) Limited v Commissioner of Inland Revenue

Under Appeal

The Michael Hill group of companies entered into a transaction in which it transferred its intellectual property and franchising operations within the group from New Zealand to Australia, using an Australian Limited Partnership (“ALP”) as part of the finance structure. Michael Hill Finance (NZ) Ltd (“Michael Hill”) owned 95% of the ALP and had applied for a binding ruling on the application of the Income Tax Act 2007, including s BG1, the tax avoidance provision. The Commissioner of Inland Revenue (“the Commissioner”) formed the view that s BG1 applied. Michael Hill then amended its ruling application to exclude consideration of s BG1 and self-assessed on the basis that s BG1 applied. It proposed an adjustment to the self-assessment which the Commissioner rejected. Michael Hill then filed challenge proceedings on two grounds—that the Commissioner was inconsistent with her treatment of Michael Hill compared to other taxpayers using the same, or materially the same, ALP structure and the Commissioner’s treatment of the transaction is wrong in that it is not tax avoidance. The Commissioner applied to strike out the inconsistency grounds of the challenge. The High Court dismissed the strike-out application.

Court of Appeal upholds strike-out of remaining Trinity tax challenges

8 December 2015

Muir and Ors v Commissioner of Inland Revenue

Under Appeal

The Court of Appeal dismissed an appeal by the Trinity investors against the decision of the High Court striking out their tax challenges. The Court of Appeal considered that issue estoppel prevented the appellants from challenging the tax years already decided by the Supreme Court. In respect of other years, the appellant was unable to recreate or sever off facts or components of the Trinity scheme to suit his new purpose and the investors faced the absolute bar of a finding that the Trinity Scheme was tax avoidance. In awarding the Commissioner of Inland Revenue (“the Commissioner”) indemnity costs, the Court considered the appeal was a collateral attack on the Supreme Court’s decision and brought for an improper purpose.

Director's liability for asset stripping under section HD 15

27 November 2015

TRA 021/11 [2015] NZTRA 20

Under Appeal

The Taxation Review Authority (“the Authority”) upheld the Commissioner of Inland Revenue’s (“the Commissioner”) assessment of a director as agent for companies pursuant to s HD 15 of the Income Tax Act 2007 (“ITA”). In finding the director liable, the Authority considered arrangements had been entered into which resulted in the companies not meeting their tax liability to the Commissioner. The Authority also considered a number of issues in relation to the director’s bankruptcy and ultimately concluded that the director had no standing to bring the tax challenge, as the challenge vests in the Official Assignee.

Dismissal of application to dispense with security for costs

28 October 2015

Musuku v Commissioner of Inland Revenue

Not Appealed

The High Court dismissed Mr Musuku’s application for an order dispensing with, or postponing payment of, security for costs in accordance with High Court Rules, r 20.13.

The Commissioner's application to strike out disputant's notice of claim

22 October 2015

TRA 027/14 [2015] NZTRA 19

Not Appealed

The Commissioner of Inland Revenue (“the Commissioner”) applied to strike out the disputant’s Notice of Claim for non-compliance with s 138B of the Tax Administration Act 1994 (“TAA”) and, in the alternative, for want of prosecution. The Taxation Review Authority (“the Authority”) held that the proceeding must be treated as having been discontinued as the claim was not effected on the Commissioner. In the alternative, the Authority held that there has been inordinate delay and that the dismissal of the disputant’s claim is justified as the Commissioner will suffer serious prejudice if the disputant was permitted at this stage to pursue his claim.

Interpretation of Section 2A(1)(a): Associated persons for the the purposes of the Goods and Services Tax Act 1985

21 October 2015

Staithes Drive Development Limited v Commissioner of Inland Revenue

Not Appealed

The High Court held that the "voting interests" test in s2A(1)(a)(i) refers to the legal ownership of shares and does not extend to the beneficial ownership of the shares. Further, the Court held that "control by any other means" in s2A(1)(a)(iii) did not extend to the factual control argued by the Commissioner.

Application to raise new propositions of law and issues dismissed

8 October 2015

TRA 018/12 [2015] NZTRA 17

No Right of Appeal exists

This was an application of the disputant to raise new propositions of law and new issues in challenge proceedings. The Taxation Review Authority (“the Authority”) found that the disputant had not identified any propositions of law or new issues that the disputant could not have discerned with due diligence at the time of delivery of his Statement of Position (“SOP”). Accordingly, the application was dismissed.

Application to set aside bankruptcy notice declined

28 September 2015

John George Russell v Commissioner of Inland Revenue

Not Appealed

The High Court declined Mr Russell's application for approval of payment terms of $1,000 per week. Accordingly, the High Court declined to set aside the bankruptcy notice issued to Mr Russell by the Commissioner of Inland Revenue ("the Commissioner").

Business ceased and no nexus with income-earning activities

23 September 2015

AAA Developments (Ormiston) Limited v Commissioner of Inland Revenue [2015] NZHC 2318

Not Appealed

The taxpayer, AAA Developments (Ormiston) Ltd (“AAA”), was a property developer that entered into a sale and purchase agreement to purchase a parcel of land for a retail and residential development and paid a series of deposits. Issues arose between AAA and the vendor, with both trying to walk away from the agreement. In litigation between the parties, the High Court found the sale and purchase agreement was binding and neither party could cancel it. The parties subsequently settled their dispute as to the balance of the deposits.
AAA returned its costs of that litigation and the part of the deposits it could not recover as deductible for income tax purposes, claiming they were incurred in the course of its business and/or were part of the costs of its revenue account land acquisition. The Commissioner of Inland Revenue (“the Commissioner”) made new assessments disallowing the deductions on the basis that AAA’s business had ceased prior to the sale and purchase agreement litigation and any expenditure after that date had no nexus with the income-earning activities of AAA.
AAA unsuccessfully challenged the Commissioner’s assessments in the Taxation Review Authority (“the Authority”) and appealed to the High Court.

Strike-out granted

16 September 2015

TRA 002/12 [2015] NZTRA 14 (Supplementary ruling)

No Right of Appeal exists

The Commissioner of Inland Revenue (“the Commissioner”) applied to strike-out these proceedings on the grounds that they were brought solely for the purposes of delay. The Commissioner’s application was granted subject to the disputants’ tax agent complying with certain conditions stipulated in the Taxation Review Authority’s (“the Authority”) ruling of 17 July 2015.
Although the disputants did not comply with these conditions, the Authority set down a date for a hearing. The disputants then applied to have Judge Barber recused. The Commissioner subsequently sought to have the proceeding immediately struck out as it had become apparent the hearing would not serve the purposes it was intended for. The strike-out was granted.

The Commissioner's discretion to amend assessments -
s 113 of the Tax Administration Act 1994

27 August 2015

Charter Holdings Limited v Commissioner of Inland Revenue

Appealed

Charter Holdings Limited ("Charter Holdings") applied to judicially review a decision of the Commissioner of Inland Revenue ("the Commissioner") not to amend her assessment of its tax liability in the 2006 to 2012 tax years ("the Decision") pursuant to s 113 of the Tax Administration Act 1994 ("TAA"). The Commissioner considered that Charter Holdings should have engaged the statutory disputes and challenge procedure, and that its judicial review was a collateral attack on the validity of her assessments and therefore must be refused.

Validity of Commissioner's assessments

6 August 2015

XXX v Commissioner of Inland Revenue [2015] NZTRA 13

No Right of Appeal exists

This is a preliminary hearing dealing with the disputant’s challenge as to the validity of the Commissioner of Inland Revenue’s ("the Commissioner") assessments.

Amounts held to be dividends, employment income or income under ordinary concepts

27 July 2015

XXX v Commissioner of Inland Revenue [2015] NZTRA 12

Appealed

This was a decision of the Taxation Review Authority ("the Authority") confirming that the Commissioner of Inland Revenue ("the Commissioner") had made an honest appraisal of the disputant’s 2006 income tax. The Authority agreed with the Commissioner that amounts deposited into various business and personal bank accounts were the disputant’s assessable income as dividends, employment income or income under ordinary concepts.

Strike-out

27 July 2015

TRA 002/12 [2015] NZTRA 11

No Right of Appeal exists

The Commissioner of Inland Revenue ("the Commissioner") applied to strike-out the disputants’ challenge as being solely for the purposes of delay and as frivolous and vexatious. The Taxation Review Authority ("TRA") found for the Commissioner, but gave the disputant one ‘last-chance’ to retain counsel, file briefs of evidence and submissions within one month of the date of judgment. Failing this, the challenge will be struck out.

High Court grants Commissioner's application for transfer

14 July 2015

Commissioner of Inland Revenue v Great North Motor Company Limited (In Receivership) [2015] NZHC 1645

Not Appealed

The High Court granted the Commissioner of Inland Revenue’s ("the Commissioner") application, made pursuant to s 138N of the Tax Administration Act 1994 (“TAA”), to transfer the challenge proceeding filed by Great North Motor Company Limited (In rec) ("Great North") in the Taxation Review Authority ("TRA") to the High Court.

Starting principle open justice

7 July 2015

Jawahar Bhaskar Musuku v Commissioner of Inland Revenue [2015] NZHC 1584

Not Appealed

The High Court dismissed Mr Musuku’s application for an order that a judgment (where he was the applicant) not be published, or that his name, other identifying information and sensitive information in the judgment not be published. Woodhouse J held that the starting point is open justice and that more is required than to point to adverse consequences of publicity.

Costs on a joint and severable basis

7 July 2015

Commissioner of Inland Revenue v Muir & Anors

Not Appealed

The High Court declined the respondents’ application to depart from r 14.14 of the High Court Rules ("HCR") and to apportion costs severally between each respondent. The High Court held that given the background to the application, and the unified opposition efficiently presented by all the respondents, there is no arguable basis for departing from the default principle under the rule.

High Court upholds determinations of Taxation Review Authority in appeal by way of case stated

3 July 2015

Webster Group of Objectors, Foster Group of Objectors, Consultant Application Group of Objectors v Commissioner of Inland Revenue

Appealed

The High Court granted the appellants’ interlocutory application but went on to find for the Commissioner of Inland Revenue ("the Commissioner") on the 13 questions included in the appeal by way of case stated.

Deductibility of management fees/tax avoidance

29 June 2015

TRA 013/10 [2015] NZTRA 10

Appealed

The Taxation Review Authority ("TRA") found for the Commissioner of Inland Revenue ("the Commissioner") on the basis there was no evidence that management services were provided and that the Q Land Trust ("the Trust") incurred the management fees. The TRA was also satisfied the arrangement was one of tax avoidance.

Cost of obtaining resource consents held to be capital

19 June 2015

Commissioner of Inland Revenue v Trustpower Limited

Appealed

The Court of Appeal held that expenditure incurred in obtaining resource consents was capital expenditure and was, therefore, not deductible under s DA 1 of the Income Tax Act 2004 ("the ITA"). As a result, s EE 7(j) of the ITA did not prevent the resource consents of fixed duration from being "depreciable property" under s EE 6 of the ITA.

Taxpayer only able to challenge whether Commissioner's opinion that return is fraudulent or wilfully misleading was honestly held

8 June 2015

TRA010/14 [2015] NZTRA 09

Appealed

The Taxpayers filed returns claiming deductions for payments described as being insurance payments to a captive insurance company. They subsequently accepted that they were not entitled to the deductions and sought to reverse the "insurance payments" in later years, not in the years the deductions were claimed. The Commissioner of Inland Revenue ("the Commissioner") formed the opinion that the original returns were fraudulent or wilfully misleading and, accordingly, she was not time-barred from reassessing the years when the deductions were claimed. The Commissioner also assessed evasion shortfall penalties. The taxpayers unsuccessfully challenged the time-bar issue but successfully challenged the evasion shortfall penalty.

Supreme Court awards indemnity costs

8 June 2015

Bradbury Peebles and Anors v Commissioner of Inland Revenue and Anors

No Right of Appeal exists

This is a costs judgment following the Supreme Court's earlier decision on 2 December 2014 to dismiss three related applications for leave to appeal. The appellants in each appeal were investors in the Trinity tax avoidance scheme. The Commissioner of Inland Revenue ("The Commissioner") (and others) applied for indemnity costs. Those applications were complicated by the bankruptcy and liquidation of a number of the appellants. The Supreme Court noted that the established position in New Zealand is that costs made after adjudication in bankruptcy in respect of proceedings which had been commenced before adjudication were not provable in bankruptcy. The Supreme Court (following a recent English authority) reversed that position and held that costs awards following adjudication can be provable as a contingent liability. The judgment is also notable for the fact that the Supreme Court took the unusual step of awarding indemnity against the appellants.

Supreme Court denies leave to appeal transfer case

4 June 2015

Kensington Developments Limited (In Receivership) v Commissioner of Inland Revenue

No Right of Appeal exists

The Supreme Court dismissed Kensington Developments Limited (In Receivership)’s application for leave to appeal the Court of Appeal’s decision, granting a transfer of the challenge proceeding filed in the Taxation Review Authority ("TRA") to the High Court.

Interpretation of section 89K(1) of the Tax Administration Act 1994: the meaning of "as soon as reasonably practicable"

20 May 2015

TRA 016/14 and TRA 017/14 [2015] NZTRA 08

Not Appealed

This was a decision of the Taxation Review Authority (“TRA”) confirming that the Commissioner of Inland Revenue (“the Commissioner”) had properly refused to exercise her discretion to accept the disputants’ late statements of position (“SOPs”) as they were not issued “as soon as reasonably practicable” as required by section 89K(1) of the Tax Administration Act 1994 (“TAA”).

Court of appeal denies application for interim relief

8 May 2015

Russell v Commissioner of Inland Revenue

Not Appealed

The Court of Appeal dismissed Mr John George Russell’s (“Mr Russell”) application to the Court of Appeal for a stay/grant of interim relief of the Commissioner of Inland Revenue’s (“the Commissioner”) bankruptcy proceeding.

High court upholds taxation review authority decisions and strikes out challenges finding them to be an abuse of process

22 April 2015

Muir & Others v Commissioner of Inland Revenue

Appealed

The High Court struck out the challenge proceedings of Dr Muir and others in relation to assessments for various tax years ranging from the 1997 to 2010. The High Court also dismissed appeals against decisions of Judge Barber striking out Dr Muir’s challenges for the 1998 to 2006 years and refusing to recall his strike-out decision.

TRA considers it has no jurisdiction to consider GST periods

20 April 2015

[2015] NZTRA 06; TRA 028/08

Not Appealed

The Taxation Review Authority ("TRA") held that only three goods and services tax ("GST") periods were properly before it

High Court strikes out judicial review, finding it to be an abuse of process

17 April 2015

John George Russell v Commissioner of Inland Revenue

Appealed

The High Court struck out John George Russell’s ("Mr Russell") application for judicial review of the Commissioner of Inland Revenue’s ("The Commissioner") decision declining his payment proposals.

Disputant's application for filing challenge out of time declined

13 April 2015

[2015] NZTRA 05; TRA 028/14

Not Appealed

This is a decision of the Taxation Review Authority ("TRA") declining the disputant’s application for an extension of time for filing challenge proceedings in relation to default assessments made by the Commissioner of Inland Revenue ("Commissioner").

Notice of defence not necessary when filing an application to strike out

24 March 2015

[2015] NZTRA 03; TRA 019/14

Appealed

This was a decision of the Taxation Review Authority ("TRA") dismissing the disputant’s Notice of Appearance under Protest to Jurisdiction, finding the TRA had jurisdiction to hear the Commissioner of Inland Revenue’s ("the Commissioner") strike-out application even though no Notice of Defence had been filed.

Advisory fees facilitate inbound tour operations and attract GST at the standard rate

16 March 2015

ID Tours New Zealand Limited v Commissioner of Inland Revenue

Not Appealed

This was an appeal from the decision of the Taxation Review Authority ("TRA") that found advisory services supplied by the appellant to overseas operators were chargeable with tax at the standard rate under s 8(1) of the Goods and Services Tax Act 1985 ("the Act"). The appeal was dismissed.

No jurisdiction to determine proceeding where disputes procedure not completed

12 March 2015

TRA 017/12; [2015] NZTRA 02

No Right of Appeal exists

This was a decision of the Taxation Review Authority ("TRA") striking out the disputant's Notice of Claim ("NOC") on the grounds that the disputes procedure under Part 4A of the Tax Administration Act 1994 ("TAA") had not been completed. Therefore, the TRA lacked jurisdiction to hear and determine the proceeding.

Court of Appeal upholds High Court's decision granting Commissioner's transfer application

11 March 2015

Kensington Developments Limited (in Receivership) v Commissioner of Inland Revenue

Appealed

The Court of Appeal upheld the High Court's decision granting the Commissioner of Inland Revenue's ("the Commissioner's") application to transfer the challenge proceeding filed by Kensington Developments Limited's (in receivership) ("Kensington") in the Taxation Review Authority ("TRA") to the High Court.

Commissioner successful in associating two companies under section 2a(1) of the Goods and Services Tax Act 1985

2 March 2015

[2015] NZTRA 01; TRA 02/10

Appealed

The Taxation Review Authority ("TRA") held that the disputant and the vendor in a secondhand property transaction were associated persons under s 2A(1)(a)(i) of the Goods and Services Tax Act 1985 ("GST Act"). In the alternative, the TRA found the disputant had entered into a tax avoidance arrangement that was void as against the Commissioner of Inland Revenue ("the Commissioner") under s 76.

New Zealand Bill of Rights application by Trinity investors struck out by High Court

10 February 2015

Ben Nevis Forestry Ventures Ltd v Attorney-General

Not Appealed

This proceeding concerned an application for orders seeking, amongst other things, to set aside the initial High Court judgment of Venning J in Accent Management Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,027 (HC) ("Accent 2004"). The plaintiffs claimed the judgment was in breach of the Bill of Rights Act 1990 on the basis that Venning J was biased towards the Commissioner, having become beholden to her following non-payment of $4,250 of stamp duty in 1992. Asher J found the High Court did not have jurisdiction to hear the plaintiffs’ claim on the basis it was an abuse of process, that the Court did not have jurisdiction and that there was no reasonably arguable case.

 

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