Tax Avoidance Case Won by IRD against Penny & Hooper  - Surgeons

You will have probably heard in the news of this now ‘land mark case’ that was recently ruled on in the Supreme Court in favour of IRD. Many of our clients have trading companies or trusts that are linked to a family trust as part of their tax structure and therefore the case is very relevant to many of our clients.

However, we are pleased to hear that the Acting IRD Commissioner Mary Craig stated:

“The decision does not mean that every incorporated business, or one that is managed through a family or trading trust, is a tax avoidance arrangement, and the Court gives clear advice on that.”

Therefore, each circumstance is different and in the case of Penny & Hooper it appears that the surgeons pushed the boundaries of reasonableness just too far with regard to setting low shareholder salaries.

 If an artificially low salary is struck at year end for the director\shareholders that is below what an external employee would be expected to be paid for doing equivalent work then that is probably tax avoidance. Other factors such as the financial status of the company or trust are also considered.

We will be working closely on an individual basis with our clients that are affected by the Supreme Court Ruling, to reduce the likelihood of such tax avoidance ruling applying to them.