Ian David Penny and Gary John Hooper v Commissioner of Inland Revenue - SC 62/2010

Civil Appeal – Income Tax Act 1994 – Applicant orthopaedic surgeons employed by family companies owned by family trusts – Applicants found by Court of Appeal to have breached general anti-avoidance provision s BG 1 of Income Tax Act as level of remuneration paid by family companies to surgeons not a “commercially realistic salary” in view of family companies’ after-tax profit and therefore artificial/contrived – Whether arrangement had purpose or effect of tax avoidance to benefit from “rate advantage” between personal income tax and company tax rates – Whether “commercially realistic salary” an appropriate concept to apply under the Income Tax Act to a family company – Whether Applicants in fact exercised control over family companies and family trusts as governing director and co-trustee – Whether Court of Appeal correct to consider use of trust capital as advances as evidence of tax avoidance arrangement – Whether Court of Appeal correct to make cost orders different from cost arrangements agreed to by parties.[2010] NZCA 231   CA 201/2009   4 June 2010