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Leading expert and former IRD advisor professor Chris Ohms from AUT University Law School says that the decision by the Supreme Court yesterday regarding the Penny and Hooper case does not create uncertainty, contrary to the views expressed today in the media.
Professor Ohms says if anything, rather than doubt the use for tax purposes of company and trust structures, the Supreme Court have clarified the law into a workable and easily understood test.
“There are some technical issues which could have been clarified stemming from the Ben Nevis case, but in the main these do not affect most taxpayers.
“It’s totally wrong to suggest that the Supreme Court has created confusion in avoidance law," says professor Ohms.
"The Supreme Court applied a straight-forward test to determine the main reason for the structure. If it was to get a tax benefit – then this would be identified.
“Look at the leading avoidance decision from Australia - Gulland v FCT - which was identical to Penny and Hooper. Both academics failed to trace the history of the general avoidance clause to the Privy Council Newton case and the New Zealand High Court decision Elmiger on which s GB 1 is based.
“The case is absolutely nothing to do with salary levels as such. It does not signal an attack by the Commissioner on salaries," Ohms says. "Normally the Commissioner cannot question the wisdom of a taxpayer’s expenditure. The only reason he was able to do so here was because there was a pre-existing tax avoidance arrangement which allows the Commissioner to ignore all the transactions that are part of the tax scheme including the salary.”
If you have not entered into a tax avoidance scheme, the Commissioner cannot touch your salary says Ohms.