IRD Failed at tax Evasion Prosecution
April 3, 2009 New Zealand Taxation
The Inland Revenue Department has lost a significant court case, in which it was prosecuting two doctors for tax evasion.
The case has been followed and monitored closely by members of the media and general business world as it is believed that the result will set a strong precedent for tax law interpretation, especially for small and medium enterprise businesses.
The trial revolved around two Christchurch based doctors Ian Penny and Gary Hooper. The pair worked in both the public sector and for their personal practices. Subsequently, from their private practices, the doctors only paid out a portion of the earnings garnered. As such they were subject to only 33% tax as opposed to 39% if it were all to be personal salary.
The Inland Revenue Department (IRD) contends that this arrangement was tantamount to tax avoidance, as the paid salaries were below the IRD’s perceived market rate of comparable surgeons. This was contended by the surgeons, who took the case to court. Their argument was that there is no necessity for a “commercially realistic” salary in the wording of the law, and that the IRD Commissioner had made up the concept in order to pursue the doctors.
On the 19th of March, the case was decided by Justice Alan Mackenzie in favor of the surgeons. Setting a precedent of their actions not being tax evasion.