15% GST

[Winston001]

Thats an interesting link. I was suprised to see that the IRD lost, particularly with regard to "market value" for the job being done.



Aligning company and personal tax rates would be the only effective way to stop this kind of thing.

The surgeons structure using a service company was set up in the 1990s when the tax rates were the same. It wasn't for the purpose of avoiding tax. Instead the surgeons aimed at reducing their personal liability if they were ever sued - unlikely but still possible under ACC. Tax rates changed and IRD took a dim view.

There is an earlier case of a dentist with a service company who paid himself $80,000pa. The Court decided the market rate was $120,000pa so he was done for avoiding tax. The two cases appear to be directly opposed and need to be read to understand the differences. Anyway the Court of Appeal will sort it out.

[Coldrider]

Comes down to the point of law the IRD are challenging.
The IRD cannot determine the business entity that must be used by an individual, sole proprieter or other.

[Mully]

Probably also comes down to "intent" (there's that word again) as well, I would think.

If the company was set up when the tax rates were the same, then the intent can't have been tax avoidance.

How does that work with IRD? I know if you intend making money, you should pay tax. If you set up your situation as a liability issue, but end up paying less tax as a consequence, what's the legal standpoint?

[Winston001]

There is a nice legal axiom somewhere, actually it might be American, but this will do:

In the words of Lord Tomlin, in the UK House of Lords case, IRC v. Duke of Westminster (1936) 19 TC 490, [1936] AC 1:

Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

Our parliamentarians have recently corrupted the long understood meaning of tax avoidance. It is now unlawful in NZ. It used to be (and still is overseas) that avoidance was lawful and evasion was unlawful.

According to Denis Healey, former UK Chancellor of the Exchequer:

The difference between tax avoidance and tax evasion is the thickness of a prison wall.

[Ixion]

I have taken money out of term deposits (in which the interest pays 39% tax), and put it into those PIE things (where it pays 30% tax (I think - less, anyway).

I did this solely because it meant I paid less tax.

So, is that illegal tax aviodance. I have " ordered myaffairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be"

I am sure that I am safe (the banks even advertise the PIE things on that basis). But, strictly speaking .....

[Coldrider]

Probably also comes down to "intent" (there's that word again) as well, I would think.

If the company was set up when the tax rates were the same, then the intent can't have been tax avoidance.

How does that work with IRD? I know if you intend making money, you should pay tax. If you set up your situation as a liability issue, but end up paying less tax as a consequence, what's the legal standpoint?

It is called 'Tax Planning". Taxation is given thorough consideration along with all other financial and non financial objectives and outcomes.

[Coldrider]

I have taken money out of term deposits (in which the interest pays 39% tax), and put it into those PIE things (where it pays 30% tax (I think - less, anyway).

I did this solely because it meant I paid less tax.

So, is that illegal tax aviodance. I have " ordered myaffairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be"

I am sure that I am safe (the banks even advertise the PIE things on that basis). But, strictly speaking .....

You nominate the tax rate with your expected marginal rate, 19.5% or 30%. If you overestimete you get no refund.
The Government has enticed you into this form of investment, you have followed.
PIEs were created alongside Kiwisaver to create a balance between overseas and local investment tax treatment.