Penny and Hooper to appeal tax avoidance rulings

Monday 2nd August 2010

Two Christchurch surgeons who lost appeals against tax avoidance findings are taking their case to the Supreme Court.

The nation's highest court granted the orthopaedic specialists, Ian Penny and Gary Hooper, granted leave to appeal today against the Court of Appeal's split decision, delivered on June 4, that found the way they restructured their earnings through family trusts at the time of income tax rate increases in 2000 constituted avoidance.

The landmark case divided opinion amongst tax practitioners, some of whom believed the decision struck at arrangements commonly made by the self-employed, while others believed it was unlikely to have significant impacts except for flagrant examples of income restructuring involving companies with a sole employee.

However, the case is widely seen as fundamental to creating greater certainty about how to apply general anti-tax avoidance law at a time when the tax authorities have had a number of precedent-setting wins.

The Court of Appeal decision marked a clean sweep for the Inland Revenue Department in a series of cases, including the pre-Christmas settlement by foreign-owned banks of avoidance arrangements that netted additional revenue for the taxpayer of $2.2 billion.

At the heart of the surgeons' cases was action taken to cut their salaries from more than $650,000 and $300,000 a year to around $120,000 after the top personal tax rate rose to 39% on April 1, 2000.

Their families continued to derive substantial income above those figures through dividend distributions to family trusts from the companies established to employ both men. Both Penny and Hooper agreed in court that their new salaries were not commercially realistic.

Businesswire.co.nz

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