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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 135
BG 1
Tax avoidance
(1)
A tax avoidance arrangement is void as against the Commissioner for income tax purposes
(2)
Under Part G (Avoidance and non-market transacons), the Commissioner may counteract a tax advantage that a person
has obtained from or under a tax avoidance arrangement.
Features of the GAAR
o
It is very broadly worded – this rule is structured so that prima facie, any arrangement to reduce or avoid tax is
tax avoidance as the definion of “tax avoidance” is so broad
Therefore, the rule must be read down to come up with something sensible –
the courts have come
up with a more realisc general rule of an-avoidance in
Ben Nevis
o
It is a blunt instrument (it does not define the criteria that disnguishes legimate tax planning from
impermissible tax avoidance)
o
It covers any “arrangement”
But the definion is so broad that any step, plan or understanding is an “arrangement” – so this
wording is technically redundant
o
Applies to every “
arrangement
” that has tax avoidance:
as its purpose or effect or
as a “not merely incidental” purpose or effect – if there are enough other commercial reasons, then it
may not be tax avoidance
o
Tax avoidance “
includes
” directly or indirectly
Altering the incidence of tax
Relieving the liability to pay tax
Avoiding, postponing or reducing any liability or any potenal or prospecve liability
This breadth of language causes problems on a literal interpretaon
o
“altering the incidence” of taxaon could apply to any transacon that results in a tax saving (take for instance
a sole trader who pays tax at 33% who decides to incorporate their business and pay tax of 28%)
o
“relieving” a person from potenal prospecve liability to future income tax leads to bizarre outcomes (it
could capture the sale of income producing assets, employment and career decisions, and people changing
residence)
The approach of the New Zealand Supreme Court
o
New Zealand courts have typically considered the issue of tax avoidance without a detailed analysis of the
statute and somemes had not referred to the definion at all!
o
The court takes the view that Parliament has deliberately chosen to leave to the judiciary the job of working
out what is tax avoidance – they deliberately made the test vague and broad in order to make it harder for
taxpayers trying to avoid tax as the courts are more flexible in applying a broad rule
o
In doing so it has created the “Parliamentary contemplaon” test
Common tax avoidance arrangements:
o
Deducons (
Frucor
)
o
Alienang personal services income / new forms of income being derived by different enes (
Hadlee
;
Peate
)
o
Inflated deducon cases (
Ben Nevis
;
Peterson
)
OLDER CASES ON A GENERAL ANTI-AVOIDANCE RULE
Although the current test is set out in
Ben Nevis
, these older cases can be good guidance in terms of applying the
general an-avoidance rule in parcular factual situaons
Newton v Federal Commissioner of Tax
(1958)
o
Facts
Dividend strip transacon with a company controlled by a consulng accountant – shares sold by
owners generang a tax-free gain
Dividend sheltered by a revenue loss on the shares acquired by the accountant’s company
o
Judgment
Famous for the so-called “predicaon test” –
one must be able to predicate of it, by looking at the
overt acts by which it was implemented, that it was implemented in a parcular way so as to avoid tax
o
Commentary
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