BNZ moves to bankrupt Trinity tax scheme architect

Architect of Trinity tax avoidance scheme tries to halt proceedings pending appeal against $160,000 judgment.

An architect of the Trinity forestry tax scheme is facing bankruptcy action from the Bank of New Zealand over a guarantee he gave on debt.

Auckland tax lawyer Garry Muir devised and set up the Trinity scheme, which in 2004 was ruled to be a tax avoidance arrangement - a decision upheld by the Supreme Court four years later.

The IRD at the time claimed the scheme would have cost taxpayers up to $3.7 billion over its 50-year lifespan.

In separate litigation, the BNZ has launched bankruptcy action against Muir after being awarded a $160,000 judgment against him and Justitiae Trustee Company in August.

The BNZ, according to a lawyer acting for the bank, has also applied to wind up the company, which is the trustee of Carbon Trust.

Muir and this trustee company, said the BNZ lawyer, were challenging the judgment and applied on Monday to halt the bankruptcy and wind-up proceedings pending this appeal.

The judge reserved his decision.

According to the August ruling in the BNZ's favour, Muir had guaranteed the debt of the Carbon Trust to the bank.

The evidence was that Muir used Carbon Trust's overdraft facility in 2012 for $145,000 of payments to himself.

Associate Judge Tony Christiansen said: "Mr Muir appears to be saying that because he has paid to himself the funds borrowed by Carbon Trust from the bank he has therefore removed assets from Carbon Trust and in that result Carbon Trust has no liability to pay to the bank those funds removed from its loan facility. The court disagrees with that characterisation for the payments."

Meanwhile, an IRD application to appoint liquidators to three Trinity investors - Redcliffe Forestry Venture, Lexington Resources, and Accent Management - was called in the High Court at Auckland yesterday.

The matter was put off until Friday in anticipation of a decision from the Supreme Court, which yesterday refused three applications from Trinity investors for leave to appeal.

The appeals, according to the Supreme Court, claim the tax avoidance case was decided on the wrong legal basis and the judge was biased.

Too good to be true

• A forestry investment allowed each participant to license land from the Trinity Foundation for 50 years to plant a crop of Douglas fir. The fee was $2 million, or about $40,000 per year.

• Although the $2 million was not to be paid until 2048, it was immediately tax deductible to the investors.

• So the investors effectively claimed a deduction of $40,000 each year.

• The result was a 50-year tax holiday for investors - most of whom would have been in their 90s or older by the time they were due to pay the tax.

• Between 200-300 taxpayers were involved, although most settled with the IRD before a High Court judgment in 2004 deeming the scheme a tax avoidance arrangement.

• A few Trinity investors have been in litigation with IRD ever since.