Landmark tax case heads to Court of Appeal
Inland Revenue goes to the Court of Appeal this week in a bid to overturn the landmark “Penny & Hooper” tax case.
The case, against two Christchurch orthopaedic surgeons, was brought because the IRD alleged the two were paying themselves less than the going rate for their professional services, through a company and trust structure.
At issue will be just how far a structure can go to be considered “artificial or contrived” in such a way as to be deemed tax avoidance.
The High Court found against the IRD last April.
How the case is determined will affect all providers of high-cost professional services who operate through company and trust structures.
However, if the IRD loses the case it appears likely the government will legislative to change the rules.
Finance Minister Bill English last year alluded to this case as being one he was concerned with in terms of its impact on the government’s tax take.
The IRD’s director of tax policy, Robin Oliver, told the finance and expenditure select committee last year that the revenue impact of losing the case would be large.
“We haven’t quantified it,” he told MPs. “It’s significant. It’s all about the ability for high income taxpayers to reallocate their income to companies or trusts, or companies owned by trusts, normally, and therefore reduce tax from 38% down to 30% or 33%.”
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Comments and questions9
The IRD really needs to explain how they contend this structure was 'set up to avoid the top tax rate' when the reality is it was set up back in the nineties when the top tax rates were exactly the same(for individuals companies and trusts)
Just shows how much money(the public's and the individual tax payers) is wasted arguing when the simple solution is to equalise them again
So rather than Bill English 'being concerned' he would be better served telling his people to eliminate the problem and stop wasting time and money on this rubbish
This whole issue is entirely of the Government's making - they need to go back to having a consistent marginal tax rate across individuals, companies and trusts. Such planning became essential when Cullen brought in the 39c individual rate
Equalise the tax rates, as recommended by investigation after investigation, and this problem will, as stated above, just go away.
Until this government recognises that unless they set tax rates at a level that are considered fair and equitable citizens will continue to arrange their affairs to pay what they percieve as fair and equitable and governments cannnot stop this.
Drs are the biggest brocks there are
Where's Cullen hiding? He is the wastemaster of taxpayers' money!
While the purpose the Trust was set up is relevant to the current and past liability for tax, the formulation is now providing a tax avoidance mechanism. As such, the loophole should be closed.
Tax confusion is being created by Inland Revenue in its quest to maximise the tax $ for the Government. I entirely agree that IRD needs to explain how this structure was 'set up to avoid the top tax rate' when the top tax rates were exactly the same for individuals, companies and trusts. Perhaps the Government and IRD would better serve by eliminating the problem with a fair and simple tax system, not clouded by retrospective technical and conflicting interpretation of the law to increase the tax $ with this type of litigation. This create uncertainty, confusion and doubt for all tax payers and their advisors and is completely counter productive to an efficient and fair tax system.
The top tax rate for all taxpayers should be set at 33 cents.
That would eliminate the need for costly litigation.
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