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Strike two! Taxpayer wins in Court of Appeal tax residency case

Just before Christmas, the Court of Appeal released its decision in the Diamond case:  Commissioner of Inland Revenue v Diamond [2015] NZCA 613. The result – which was a win for the taxpayer – once again strikes down the Inland Revenue’s interpretation of what is meant by a “permanent place of abode”. (Refer to James Coleman’s blog for a quick précis of the background facts to Diamond).

The Court of Appeal explicitly rejected the Commissioner’s argument that having a rental property “available” to the taxpayer was sufficient to amount to having a permanent place of abode in New Zealand. The Commissioner’s argument in court aligns with the position taken by Inland Revenue in Interpretation Statement IS 14/01.

The Court reviewed the TRA case law in this area and discussed Case Q55 (1993) 15 NZTC 5,313 in some detail. Significantly, in all of the TRA cases reviewed, the taxpayer had previously lived in the house that was later found to be a permanent place of abode. Case Q55 was rejected as good authority for the purposes of the Diamond case.

The Court noted that the following (non-exhaustive) factors may be relevant in determining whether a taxpayer has a permanent place of abode in New Zealand:

  • The continuity or otherwise of the taxpayer’s presence in New Zealand and in the dwelling.
  • The duration of that presence.
  • The durability of the taxpayer’s association with the particular place.
  • The closeness or otherwise of the taxpayer’s connection with the dwelling — the situation before and after a period or periods of absence from New Zealand should be considered.
  • The requirement for permanency is to distinguish merely transient or temporary places of abode. Permanency refers to the continuing availability of a place on an indefinite (but not necessarily everlasting) basis.
  • The existence of another permanent place of abode outside New Zealand does not preclude a finding that the taxpayer has a permanent place of abode in New Zealand.

 

The Court concluded by noting that:

“Importantly the focus is on whether the taxpayer, not members of the taxpayer’s family, has a permanent place of abode in New Zealand.  …[T]he fact that a taxpayer may provide a home for his family in New Zealand and live elsewhere would not necessarily be sufficient to establish that the taxpayer had a permanent place of abode in New Zealand.”

After two losses in the appellate courts, tax practitioners will be interested to see what the Commissioner does next. Will the Supreme Court be the Commissioner’s court of last resort, or will a revised interpretation statement be the next step?

C of IR v Diamond [2015] NZCA 613 18 December 2015.

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