O’Neil & ORS v Commissioner of Inland Revenue (2001) 20 NZTC 17 (PC)
The principle of choice was endorsed in the privy council judgement of Lord Hoffmann in O’Neil & ORS v Commissioner of Inland Revenue that the adoption of a course of action which avoids tax should not fall within the boundaries of tax avoidance if the legislation on its true construction, was intending to give the taxpayer the choice of avoiding in that way.
O’Neil & ORS v Commissioner of Inland Revenue was a case of conversion of profits into capital. The taxpayers sold the shares to the company controlled by their accountant, the taxpayer company then became a part of the accountants group of companies that had accumulated tax losses. Taxpayer transferred the net profits of their companies to accountants company as an administration fee, the accountant offset income against the group losses and returned tax free capital as part instalment of the purchase price. Below is a summary of their arrangement:
Lord Hoffmann had no doubt that “the scheme by which the profits of the trading companies were to be converted into capital receipts in the hands of the shareholders” was tax avoidance caught by section 99 of Land and Income Tax Act 1954