The recent High Court decision of BHL v C of IR is a reminder that care must be taken to accurately record shareholding changes, especially in relation to the continuity rules. In that case the parties tried, unsuccessfully, to rely on a claim that the shares were jointly held under relationship property rules.

In summary, for some years prior to 2000 BHL operated two businesses, a professional practice and a car restoration business. Its major shareholder was Mr B and his wife, Mrs B, who held 4,000 of the 400,000 shares. The professional practice was profitable but, in general, the car restoration business was not. BHL habitually offset the profits from the professional practice against the losses from the car restoration business. In late 2000 BHL transferred the car restoration business to BIJ, which was owned in equal shares by Mr and Mrs B. Once past losses in BHL were exhausted, BHL sought to offset its profits against BIJ’s losses.

In order to come within the requirements of the group offset provisions in the Income Tax Act 2007 (“ITA”), a common shareholding of at least 66% of the shares in each company must exist. Although Mr and Mrs B were equal shareholders in BIJ, Mrs B was still shown in BHL’s share register as holding 1% of the shares. Several steps were taken to rectify this problem, including obtaining from the Family Court a declaration that between 2000 and 2006 the 400,000 shares in BHL were relationship property and owned equally by Mr and Mrs B.

The Inland Revenue Department refused to accept that it was bound by that order or that it had retrospective effect.

The Court found that for the purposes of the group company offset provisions of the ITA, Mrs B had to be recorded in the share register of the company as being a shareholder at least to the extent of 50% of the company’s shares. Further, the Court found that a relationship property declaration did not bind the IRD. Therefore, the Court agreed with the IRD that the losses could not be “grouped”.

How it affects you

This case is a reminder that you must take care to accurately record shareholdings, and that you must be able to evidence any change in shareholding if you want to rely on shareholding to support your tax position. Shareholding is critical for carry-forward of losses, loss offsets and subvention payments, maintaining Qualifying Company status, and utilising imputation credits, amongst other things.


A recent Taxation Review Authority (“TRA”) decision highlighted why taxpayers need to be particularly careful about their tax residency when working outside of New Zealand. In this case, the taxpayer was seconded to Fiji for a period of almost five years, but continued to own a home in New Zealand and his wife was mainly based in New Zealand during that time. The taxpayer was provided with a home in Fiji by his employer.

The taxpayer and the Inland Revenue Department agreed that the taxpayer was tax resident in New Zealand by virtue of retaining a permanent place of abode in New Zealand.

Under Fijian domestic law, the taxpayer was Fijian tax resident, as such the issue turned on whether the taxpayer was solely resident in New Zealand or in Fiji under the New Zealand/ Fiji Double Tax Agreement (“DTA”). The taxpayer had not returned his income in New Zealand on the basis that he was not resident in New Zealand by virtue of the DTA.

Judge Barber of the TRA held that the taxpayer was resident in New Zealand under the tie breaker provisions of the DTA and, as such, was liable for tax in New Zealand on the income derived in Fiji. In this case, the taxpayer maintained a permanent home here and did not have a permanent home in Fiji, his centre of vital interests remained in New Zealand, and the Taxpayer’s habitual abode continued to be in New Zealand.

Somewhat unfortunately the taxpayer had conceded that they had a permanent place of abode in New Zealand which made it difficult to dispute the existence of a permanent home, and habitual abode in New Zealand under the DTA.

The decision highlights the difficulties that a taxpayer can have when attempting to discharge the onus of proof. Often a taxpayer’s documentation will be incomplete or non-existent, which makes it difficult to discharge the onus of proof particularly when the Inland Revenue Department has the benefit of hindsight.

How it affects you

Whilst this case does turn on its facts, it does highlight that significant care must be taken by a taxpayer seeking to cease their New Zealand tax residency.

If you are taking employment overseas and are unsure as to whether you will cease having a New Zealand income tax liability, we suggest that you obtain specialist tax advice prior to leaving New Zealand so that you understand your obligations or can take appropriate steps to cease your tax residency.


The Inland Revenue Department has released tax information in relation to the Rena grounding on the Astrolabe Reef off Tauranga. The Inland Revenue Department have advised that for taxpayers affected, they will allow the re-estimation of Provisional Tax and the release of early refunds for any over-payments. The Inland Revenue Department will consider instalment arrangements for the payment of outstanding tax in some circumstances. Tax deductions will be allowed in respect of donations made in relation to the clean up, provided the appropriate paperwork is held.


 “Throughout the last twenty minutes, I definitely had thoughts of what happened in 2007 running through my head. It was just desperation really.”

- Tony Woodcock, All Black

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