Sharechat Logo

TRA takes a harder line

By Rob Hosking

Friday 27th June 2003

Text too small?
Companies that restructure their businesses for reasons unrelated to tax may now be penalised if the effect is to reduce their tax.

An interim ruling from the Taxation Review Authority on a dentist who changed to operating as a trading trust suggests the authority is now taking a much harder line on such trusts.

The dentist ­ whose name has been suppressed ­ wanted to protect himself from any liability from his dental partner, and also to avoid future possible claims from both his spouse and his partner's spouse.

The dentist set up a family trust, with a company as a trustee ­ which effectively made it a trading trust ­ and then dissolved the dental partnership. The dentist was an employee of the trust. Costs were shared between the trust and the partner, and income from the trust was distributed among the beneficiaries, resulting in tax savings.

The authority accepted that the restructuring was for non-tax reasons, and that the tax savings were incidental.

However, in his interim ruling, Judge Barber placed a strong emphasis on the fact that the "effect" of the restructuring was a lower tax liability, even though he accepted that this was not the purpose of the change.

Tax practitioners are now concerned this represents a shift in emphasis by the authority to a more outcomes related test of whether tax avoidance or evasion has taken place.

Until now the stress has been more on whether the intent or purpose of any company restructuring has been to avoid tax.

Inland Revenue has tended to take a somewhat jaundiced view of trading trusts. However, the department did not get it all its way in the ruling ­ Judge Barber also criticised the IRD for its approach in the case.

The IRD reconstructed the dentist's arrangement as if the change had not occurred, and assessed his tax bill accordingly.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Heartland Market Update
Steel & Tube Fy20 Trading Update
Further Contract Win Strengthens Scott Technology’s Position In Mining Sector
China’s Assertiveness Is Becoming a Problem for Its Friends, Too
New Talisman - Chairman’s Address to AGM 2020 August 6, 2020
T&G reports its 2020 Interim Results
Gold price hits $2,000 for first time on Covid
TruScreen strengthens its market presence in central and eastern Europe
Refining NZ announces non-cash impairment
Ryman Healthcare COVID-19 update Victoria

IRG See IRG research reports