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 New tax rules favouring shareholder employees of small companies. 

In a tax case of Nancy Lois Roberts v Commissioner of Inland Revenue [2018] NZHC 2153. The High court delivered the decision explaining section LD1 and LD3 of the Income Tax Act 2007.

Taxpayers started charitable trust in 2007, provided funding in a form of bank deposits. They then claimed a tax credit for five years on the basis that the forgiveness of debt was a charitable gift. Total tax credits resulted into a refund of $92k.

 The Commissioner argued that forgiveness of a debt is not a charitable gift within the meaning of ss LD 1 and LD 3 of the Act, because “monetary” means the payment must be made in cash form only.

The section LD3 states “means a monetary gift of $5 or more that is paid”. Court expanded on two words in its judgement “monetary” and “paid”.

The court looked at wider concept of “monetary”. It stated when enacting LD1 and LD3 the parliament intentionally removed the word “money” and used a broader phrase. This suggests the broader scope to the section. Money or moneys worth.

Referred Databank case in explaining “paid” ; payment can be effected by the reduction of a debt (Databank Systems Ltd v Commissioner of Inland Revenue [1990] 3 NZLR 385 (PC)

 

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