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23 Jun 2005
Appeal Status

Section 99(4) argument fails

2005 case note - taxpayer could not contest a debt outside the taxation procedures; argument advanced was flawed - disputable debt.

Panmure Consultants Limited


The taxpayer could not contest a debt outside the taxation procedures to do so and, even if this was possible, the argument advanced was flawed and could not succeed.


This was a debt recovery proceeding after the Commissioner's success in a Russell template case (Withey reported at (1998) 18 NZTC 13,606 and 13,732).

The taxpayer argued there was a dispute as to the quantum of the debt, notwithstanding that the debt was now unable to be disputed as its appeal rights in respect of the tax case had expired, and that the Commissioner's statutory demand should be set aside.

The taxpayer argued that under sec 99(4) ITA 1976 there was double taxation. Section 99(4) provided:

99(4) [Deemed derivation of income] Where any income is included in the assessable income of any person pursuant to subsection (3) of this section, then, for the purposes of this Act, that income shall be deemed to have been derived by that person and shall be deemed not to have been derived by any other person.

This section is now section GB 1 (2) of the 2004 Act.

In the taxpayer's submission the fact the taxpayer was not allowed a deduction for consulting fees paid to Mr Russell and that Mr Russell was assessed for those fees resulted in illegal double taxation that was prohibited by section 99(4).


In a concise decision Associate Judge Sargisson dismissed the taxpayer's argument on the grounds it was both procedurally unable to raise it and that the argument was flawed anyway.

Having exhausted its objection rights, section 27 ITA 1976 (now section 109 TAA 1994) prevented the taxpayer from disputing the debt and from raising a fresh ground of objection.

In any event the Associate Judge considered the argument was "untenable" explaining:

"subsection (4) deems the relevant income item to be derived from a single person to avoid another person being assessed in respect of that same income item.


"the taxable income we are concerned with in this case is the income of [the taxpayer] which it used to pay consulting fees to Mr Russell. The income is distinct from the payment of those fees, which when received, is income in the hands of Mr Russell. The argument [for the taxpayer] thus fails to recognise that two separate taxpayers are involved and the income falls to be assessed in respect of both the payer and payee.

"In this respect the comment by the Court of Appeal in Miller v CIR [1999] 1 NZLR 275 at 304 is apposite:

'A payment by one taxpayer which is not deductible is frequently assessable in the hands of the recipient.'

The fact that Mr Russell received the consulting fees, which as such are assessable as income in Mr Russell's hands, does not trigger the application of section 99(4), and thus has no effect on [the taxpayer]'s own liability for tax on the monies it paid Mr Russell for the fee. That distinct liability arises simply because the fees could not be deducted from its income as a legitimate deductible expense." [paragraph 20 to 23]

Companies Act 1993, Income Tax Act 1976