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 le
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%.”
