The
High Court dismissed tax penalties imposed on a company set up by former
Brierley Investment executives because they were upfront about the tax issue in
dispute and highlighted the point with Inland Revenue when filing their
company’s tax return.
Former Brierley chief
financial officer Herman Rockefeller and his wife Victoria, formerly Brierley
chief accountant, set up Easy Park Ltd in 2002 to hold part of their commercial
building portfolio. Mr Rockefeller died
in 2010. Tax issues arose with Easy
Park’s 2013 return.
The High Court was told
Easy Park tenant Whitcoulls negotiated a $1.1 million fee to escape its lease at
312 Lambton Quay in Wellington. This
surrender fee amounted to about one third the rent payable for the remaining
three years of the lease. As part of
capital restructuring following its 2011 collapse into voluntary administration,
Whitcoulls was shifting to new premises along Lambton Quay. In notes to its 2013 tax accounts, Easy Park
stated the $1.1 million surrender fee was a non-taxable capital receipt. This was a direct challenge to Inland
Revenue’s stated public position that surrender fees were taxable.
Tax law was changed with
effect from April 2013 explicitly making surrender fees taxable. At the time of Easy Park’s 2013 tax return it
was still a live issue; there was no tax law directly on the point. Easy Park and Inland Revenue duked it out in
the High Court. Easy Park lost; Justice
Ellis ruled the $1.1 million surrender fee taxable. Tax totalling $308,000 was payable. Leasing commercial space was Easy Park’s core
business. Any payments relating to a
lease were revenue.
Justice Ellis dismissed
Inland Revenue’s assessment of a ten per cent shortfall penalty for
underpayment of tax. Easy Park was not
trying to “slip one past” Inland Revenue, she said. The issue was highlighted in its tax
filing. The only authoritative statement
on the then legal position was an Inland Revenue public ruling. These rulings are not binding on taxpayers
and the mere fact a ruling has been published suggests the matter may be
difficult or controversial, Justice Ellis said.
Easy
Park Ltd v. Inland Revenue – High Court (10.08.17)
17.099