Tax planning and anti-avoidance The referencing requirements are New Zdealand Law (2nd edition). This guide includes a bibliography along with a list and description of each case.

Answer to Question: BAC606 Taxation


Don't use plagiarized sources. Get Your Custom Essay on
BAC606 Taxation
Just from $8/Page
Order Essay

Section BG1 deals with the Act’s general anti-avoidance provisions.

Section GA1 of the cited Act grants the Commissioner power to make adjustments, after the application s.BG1.

These two legal provisions give a general overview of the legal options available to the Commissioner regarding tax avoidance.

They also detail the approach taken by the Commissioners towards the implementation of Anti-avoidance laws in New Zealand.

Normally, s BG 1 will only be considered after determining if the Act has any other applicable provisions.

The Interpretation Act, 1999, Section 5(1) defines the purpose of each provision. This allows for an evaluation of this arrangement.

Consequently, s BG1 cannot be considered applicable in light of the whole arrangement unless it circumvents other specific provisions and is thrown out.

In Ben Nevis Forestry Ventures Ltd., v Commissioner of Inland Revenue (2008) NZSC115, [2009] NZLR289.

In this judgement, the Supreme Court stated its intent to resolve the matter of s BG1 and other sections of the Income Tax Act.

This paper examines the general provisions of the Income Tax Act 2007 (ss BG 1 & GA 1) and the terms that are relevant as per s YA 1 to the Act.

There are still some cases in which tax avoidance is referred to the predecessors of ss BG 1 & GA 1 notably:

108 of The Land and Income Tax Act, 1954

99 of Income Tax Act, 1976

BG 1 & GB 1 in the Income Tax Law, 1994

ss BG1 & GB1 of The Income Tax Act, 2004,

BG 1 from the Income Tax Act, 2007.

GA 1 in the Income Tax Act 2007.

YA 1 to the Income Tax Act, 2007.

Elmiger [1966] NZLR 683 (SC), at 687-688.

W T Ramsay Ltd.

Furniss v Dawson (Inspector of Taxes), [1984] AC474 (HL).

Commissioner of Inland Revenue, Challenge Corporation Ltd [1986] NZLR 513 at (555) (PC).

Miller v Commissioner of Inland Revenue [1999]1 NZLR 275 (CA).Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767.

Ben Nevis Forestry Ventures Ltd.

Penny V Commissioner of Inland Revenue [2011] NZSC95. [2012] NZLR433.

Section BG 1, which is used by tax authorities for situations that could render the whole arrangement invalid, has been always applied.

The language used to formulate s BG 1 is not permissive for apportionment. All tax outcomes of the entire arrangement, including all legitimate ones are therefore void.

Under s.BG 1 the law doesn’t allow for any applicant to alter or leave in place any portion of the tax avoidance arrangements.

The final effect of s BG1(1) means that a tax arrangement is null as soon as it begins.

Section BG 1, by itself, is an annihilating law.

It does not contain any provision that would create a tax obligation.

The Tax Administration Act, 1994 requires that the Commissioner applies s. 113 to the assessment.

Legal circles have often pointed out this drawback.

If a voiding an arrangement was successfully executed to counteract any tax advantages the applicant might have, then the Commissioner wouldn’t need to apply sGA 1.

However, in practice this is not true.

Notably, if the applicant has not been able tax avoidance or the voiding cannot be used to remove legitimate outcomes the applicant may have gained or if consequential adjustments are still required, the Commissioner must apply for s GA 1.

The legal fraternity is consistent in stating that Sections BG 1 & GA 1 are giving the Commissioner undue powers which can be used to counteract a fiscal advantage.

This is because of the combination effect of s BG1 with the application of s GA1.

It is crucial to be familiar with all the legal terms that are used in anti-avoidance legislation and their meanings in legal matters before proceeding with the arguments.

An agreement, contract, plan or understanding is, in essence, an agreement. It does not matter if it is enforceable or not.

Tax Avoidance deals are those that involve:

Indirectly or directly, they can help the applicant to change the incidence any type of income taxes;

Indirectly or directly, it helps the applicant to be released from the responsibility of paying income taxes.

Indirectly or directly, it aids the applicant in reducing or avoiding income tax liability.

Tax Avoidance Agreement is actually the culmination and the most important of the two terminologies discussed at 5 & 6. It refers to any arrangement entered into either by the person directly or indirectly, or by another person.

Has tax avoidance been its purpose or result?

or has tax-avoidance as one of its goals or effects

Any other purpose or effect can be refer-able in ordinary business or family transactions provided that the tax avoidance purpose/effect is not only an incidental one.

As noted above, s BG 1 has the power to annul any tax avoidance arrangements.

Technically, “arrangement” refers to any legal, binding contract with certain informal, unenforceable terms.

A “arrangement” means:

Include “all the steps and transactions necessary to make it effective”include unilateral arrangements;

When two or more documents are part of the same “agreement”, contract or plan, or understanding, they can be combined.

Include all transactions or steps that the applicant has made or taken into effect, even if they’re not from New Zealand.

The definition also states that a taxpayer is considered to be a party “arrangement” even though it doesn’t know the details or how it would be done.

Therefore, it is crucial for law makers to fully understand the arrangement before they make any decisions.

This should include an understanding of the private and commercial objectives as well as tax implications.

There are many factors that must be taken into consideration when determining whether there was an tax avoidance arrangement.

how the arrangement will be executed

role of all relevant parties;

Documents and transactions can have a commercial and economic impact

Durability of the arrangement

Financial consequences: Nature and extent

The relevancy of these factors will depend upon the provisions that were used or circumvented, and what facts, features, and attributes are required by the Act in its entirety.

The Parliamentary Contemplation Test

Based on the points above, the question that must be answered is “Does the arrangement make use of (or circumvents?) the relevant provisions in such a manner as to be consistent with the purpose of the Parliament?”

In this context, you need to make an assessment as to whether or not the required facts, features, attributes are sufficient to enforce the Act.

Even in complex or unusual arrangements that create or produce tax results that can be considered unfavorable from the policy’s point of view, they may not be tax avoidance arrangements.

Taxpayers can structure their financial arrangements to obtain the greatest tax advantages. This is provided that they comply with the intent of the Parliament in adopting such provisions.

However, it is a fact that only a literal conformance with the legal provisions will not be sufficient to establish that the use was made within the Parliament’s contemplation.

The Predication Test. In this regard, Lord Denning introduced what is now known as the “predication test”.

His Lordship declared that an arrangement is not tax avoidance when it can be explained as an ordinary business or family transaction.

Lord Denning, and I quote:

“In order to bring an arrangement within the section, you must be able – by looking over the overt actions by which they were implemented — to predict that it was implemented in this particular way to avoid tax.

If you cannot predicate, but can acknowledge that the transactions are explicable by reference to normal business or family deal, without necessarily being labelled a means of avoiding tax, the arrangement will not be included within the section.”

This test has limited anti-avoidance provisions to tax avoidance arrangements that have the sole purpose or principal of tax avoidance.

The Privy Council held that the relevant purpose for tax avoidance had been the sole or at minimum principal purpose an existing arrangement. This ruling was decisive in overturning Woodhouse Ju in Miller.

To address the restrictive way s 108 was being used, amendments were made in s 108.

This amendment clarified that any arrangements having a greater than “merely incidental effect” of taxavoiding should be treated as such, regardless of whether such purposes or effects relate to an ordinary family business or other family transactions.

The Act’s anti-avoidance provisions ban all arrangements that are not in accordance with the Act’s intent.

Taxpayers have the right to design their financial arrangements, provided they follow the Act’s guidelines. However, if the structure is not in accordance with the Parliament’s understanding, the arrangement could be considered a tax avoidance.

If a taxpayer makes a decision to sell or lease a property, it could have different tax consequences.

If the taxpayer has arranged such an arrangement to use the lease provisions, but taking into account commercial and economic conditions, it is considered that the arrangement is a sale under the law, the provisions applied by the applicant will be outside the scope of Parliament’s attention.


In subsequent judicial rulings on the same subject, the New Zealand Supreme courts’ judgment in Ben Nevis Forestry Ventures Ltd.v. Commissioner of Inland Revenue (2008) NZSC115, [2009] NZLR289) has been recognized.

Many subsequent judgements acknowledged that the Ben Nevis approach in anti-avoidance cases is the best.

In Penny v Commissioner of Inland Revenue (2011) NZSC 95, [2012] NZLR 433), the Supreme Court gave another landmark anti-avoidance case. Commonly referred as Penny & Hooper by legal circles.

These judgments were interpreted by all subsequent Commissioners as a true reflection of the law in cases relating to anti-avoidance.

Legal application of the term “Arrangement” has been discussed in PART-C: THE APPLICATION section of this paper.

In this paper, we have also discussed how s BG 1 applies to an arrangement that is established that the defendant in an action against anti-avoidance was acting with intent and knowledge.

However, some cases where the defendant was unaware that the arrangement existed and was still subject to s BG 1 have been brought to our attention.

The contention in this paper is that the case involving Mr. Nathan seems to have been one where he was not aware of the legality or intent of creating an anti-avoidance situation for tax.

His sole purpose was to preserve the financial rights of his family members. He created a family trust, to which he transferred all financial responsibilities as well legal rights of trustees regarding the asset he created, and any future income.

On the basis these arguments, the taxpayers asked Ben Nevis to have the Act recognized by the courts.

The court stated, I quote:

“The appellants have argued for a sustained argument that courts should not restrict tax-beneficial choices to commercial and other parties.

Taxpayers have the right to structure transactions to maximize tax advantage, according to the approach that we have proposed.

They can make use of tax incentives available in any way that the law allows.

However, they can not do so in ways that are prohibited by the general Anti-Avoidance Provision. Unquote.

Penny (SC), a New Zealand Supreme Court case, stated that taxpayers should be able to transfer assets of their businesses to trusts/companies owned by their family trusts. The condition was that the arrangement did not include any other elements that could have been considered tax avoidance.

A scheme should have the economic and business reality that the taxpayer is entitled to all the benefits of income, as long as it was obtained effectively.Bibliography

Enonchong N. D. Undue Influence and Unconscionable Buying (Sweet & Maxwell 2006.)Mayer, D.N.

Liberty to Contract: Rediscovering the Lost Constitutional Right (Cato Institute, 2011)Poole, J.

Contract Law (OUP2008).Trebilcock, M.J.

The Limits of Freedom of Contracts, HUP 1993Allcard v Skinner [1887] LR 36 ChD 145Barton v Armstrong [1976] 1 AC 104

Ben Nevis Forestry Ventures Ltd.

Commissioner of Inland Revenue, Challenge Corporation Ltd [1986] NZLR 513 at (555) (PC).Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3

NZLR 767.

CTN Cash And Carry Ltd v Gallagher Ltd (1994) 3 All ER714

Dimskal Shipping Co SA v. The International Transport Workers’ Federation, Evia Luck [1991] All ER 871

Elmiger [1966] NZLR 683 (SC), at 687-688.

Fisher v. Bell [1961] 1QB 344.

Furniss v Dawson (Inspector of Taxes), [1984] AC474 (HL).

Occidental Worldwide investment Corporation v Skibs A/S Avanti.Sibotre [1976] 1 Lloyd’s Rep 293

Miller v Commissioner of Inland Revenue [1999] (1) NZLR 275 (CA).

Penny V Commissioner of Inland Revenue [2011] NZSC95. [2012] NZLR433.

W T Ramsay Ltd.

Leave a Reply

Your email address will not be published. Required fields are marked *