Opinion
The High Court judgment in the Trinity case is unsurprising and an unwelcome Christmas message for the taxpayers involved.
The Inland Revenue Department's desire to attack arrangements that provide significant tax benefits to taxpayers has never been stronger.
While it is unlikely the High Court judgment will be the last
word on the topic, to take this matter further will involve considerable resources, time and money, for all those involved, with history suggesting that the IRD is in the favoured position on this one.
So does the High Court really clarify the issue of tax avoidance? No.
Given the wording of the general anti-avoidance provisions of the Income Tax Act, it is unlikely that there will ever be any certainty on where the line can be drawn between arrangements that are acceptable and those which are not.
Avoidance is not capable of exact definition nor is the view on avoidance static.
Following on from the ACTONZ decision and other tax decisions in relation to taxpayer participation in investment schemes, the Trinity case is another step in the IRD's campaign against what it sees as retail tax avoidance arrangements.
The Trinity case shows investors need to be aware that if an arrangement is to be entered into that involves substantial sums and has a clear tax angle, it is likely if not inevitable that it will, at some point in time, come under IRD scrutiny.
If the amounts are large, the arrangement unique and the tax benefits material, that scrutiny will probably result in a challenge.
When looking to invest, taxpayers should be cautious of any arrangements where: the capital outlay is minimal relative to tax benefits received; there is little or no exposure to risk for the taxpayer; but for the tax benefits, it is hard to see that the transaction would ever be entered into; and the transaction is unusual and not commonplace.
In terms of tax advisers, Trinity is a signal that widely offered arrangements that have material tax implications need to be backed by a binding ruling from the IRD.
However, even binding rulings are not foolproof. They can be retracted prospectively and changes in law can also have the effect of nullifying their certainty.
Without wishing to be overly negative, if it sounds too good to be true it's probably because it is.
* Thomas Pippos is the managing tax partner at Deloitte.
