Student ID: 15891048
Postgraduate Diploma in Professional Accounting
Taxation in New Zealand (Was 368905)
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In the report some of the landmark cases
have been quoted support findings to derive conclusion as well as to decide consequences
thereon. The report has also made an attempt to determine if an activity undertaken as hobby
be eligible for deduction as business loss.
The main issue relates to finding out answers to questions specified for consideration1. Does agreement between Rosy and James constitute an arrangement for the purpose of tax
avoidance u/s BG1 of ITA 2007?
2. Can commissioner apply section GA1 for this arrangement?
3. Did remuneration paid to James was inflated?
4. Is James allowed to claim losses for farming activity undertaken as hobby?
Provisions of tax avoidance contained in legislation needs an interpretation for deciding cases
and understanding the real meaning of lawmakers. The main issues court of law had was to
deal with a relationship between general tax avoidance provisions and specific provisions for
special considerations granted such as exemptions or exclusions for certain transaction in the
legislation. The court has made an attempt to reconcile and reformate the legislation
postulated by lawmakers to reach a general conclusion. The task is very challenging and thus
the methodology to determine the general rule for interpretation has always been
inconsistence. The court has always tried to look for the intension behind the arrangement to
Snehal Yatin Prabhavalkar (Students ID 15891048)
determine taxability on a case to case basis. The Hon’ble Supreme Court has grappled with
interpretation of tax avoidance and have analysed laws to deliver judgements in various cases
to make a jurisprudence and principles.
Since beginning it is been noted that there has been an issue between tax payer and collector
regarding tax liability determination. Taxpayer would like to pay lessor tax by indulging in
various arrangements and schemes; on contrary collector would like to maximise the same
while raising the concept of ‘Tax Avoidance’
Tax avoidance include, u/s YA1 of ITA2007, directly or indirectly altering incidence of
income tax, reducing or avoiding or postponing taxpayer’s liability either at current date or
later in future. Therefore, tax avoidance is an attempt made to minimise tax burden through
artificial legal means called as arrangements 1 with an intension to avail tax benefits. A tax
avoidance arrangement 2 include any arrangement which directly or indirectly alters the
incidents of income tax. In such a case the Commissioner has a power of reconstruction 3
where the commissioner can restore the benefits a taxpayer has availed under such
In several cases on tax avoidance it is been noted that there is a very thin line between
legitimate tax planning and deliberate tax avoidance. Tax avoidance agreements are void
against the tax commissioner. Dispute between these two has been illustrated under several
cases with inputs from landmark...