Interests
associated with Cambridge-based Osmond family have been hit with tax penalties
amounting to nearly half a million dollars after the High Court ruled an
“unacceptable tax position” was taken in filing for a GST refund of $936,600 as
part of what the court ruled was a tax avoidance scheme.
What was expected to be a risk-free
opportunity to complete a struggling Te Anau subdivision and incidentally
maximise recoveries for mortgagee ANZ instead turned belly-up when ANZ forced a
sale of unsold sections and Inland Revenue imposed a fifty per cent penalty
after declining a GST claim. The High
Court ruled selling the subdivision to a shell company at an artificially high
price amounted to tax avoidance.
The High Court was told a planned 240
section subdivision at Te Anau was in financial difficulty following the 2008
financial crisis. Sections at the Delta
development were not selling. Mortgagee
ANZ Bank had lent $8.5 million secured over the project. The developer engaged Mr Murray Osmond’s
company Cantab Management Ltd for advice on marketing unsold sections. The developer decided to bail out. Evidence was given that Mr Osmond saw a
commercial opportunity to complete the Delta project “risk free”. Tale Holdings Ltd was incorporated as a shell
company, taking over Delta for no payment but taking the unsold sections
subject to the $8.5 million owed ANZ.
Interests associated with Mr Osmond own Tale Holdings. ANZ was still heavily exposed. The unsold sections were transferred at a
price of $8.5 million, but had a market value of little more than $3.2 million.
Evidence was given that Tale Holdings
applied for a GST refund of $936,629 based on the $8.5 million “purchase” price
of the Delta subdivision. It was
intended the refund be used to pay down some of the ANZ debt. Inland Revenue dissallowed the claim,
imposing a fifty per cent penalty on the amount declined.
Justice Collins ruled structuring the
sale at a price in excess of the market price and wrongly claiming GST did
amount to tax avoidance and that a fifty per cent penalty assessed on the GST wrongly
claimed was justified. The purchase
should have been zero rated. Penalties for taking an “unacceptable tax
position” arise when tax claims “fail to meet the standard of being about as
likely as not to be correct”.
Tale
Holdings v. Inland Revenue – High Court (22.04.16)
16.065