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16 Jan 2009
Appeal Status
Not appealed

Template avoidance scheme assessments confirmed

2009 case note - Tax avoidance template scheme; repetition of arguments already dealt with by the Courts; CIR's assessments confirmed.

TRA Decision Number 1/2009

Income Tax Act 1976, section 99


Tax avoidance template scheme; repetition of arguments already dealt with by the Courts; Commissioner's assessments confirmed.

Impact of decision

This matter is largely confined to its own facts although it confirms the Commissioner's view of this particular tax avoidance scheme.


This is the final judgment arising from an interim decision delivered on 26 November 2007 (Case Y20 (2008) 23 NZTC 13, 207). As part of the interim decision Barber J reserved leave for the parties to make further submissions and raise any new issues. Further submissions were received and conferences were held prior to the judgment being issued.

The judgment deals with income tax assessments against three groups of taxpayers ("the objectors") covering the 1986 to 1991 income years. This matter arose as the result of reassessments issued to the objectors to counteract a tax advantage obtained by them under a tax avoidance arrangement pursuant to section 99 of the Income Tax Act 1976 ("the Act"). Objections were filed in relation to the Commissioners' reassessments.

All issues in this case relate to participation by the objectors in what is well-known as the Russell Tax Avoidance Templates. Broadly, during the early 1980s Mr Russell commenced acquiring profitable companies and businesses through agents or nominee companies. The vendors were required to provide 100 percent vendor finance but were given a premium on their share price and an option to repurchase the assets of the business conducted by their company at a later date should they wish to. It was pleaded that the purpose of the option was to give those vendors an assurance that they would not lose their livelihood if the new venture was not as profitable as anticipated.

The operating company became a member of the Russell Group of companies which had associated companies with tax losses available to be carried forward. The template technique involved a management contract whereby a Russell entity provided services to the operating company which then became liable to pay administrative charges and consultancy fees to the Russell entities.

It was accepted by the Commissioner that the objectors were not aware of the Russell business empire and were not aware of the arrangements to utilise tax losses in this group. The vendor objectors never received the income of the subsidiary trading company, which had previously been their company. It was also accepted the objectors entered into these transactions to acquire capital gain on the sale of the business or business entity to the Russell group and to obtain continuing administrative and financial assistance after that.


Most of the issues and arguments raised by the objectors subsequent to the interim decision were identical or very similar to issues and arguments which have been conclusively dealt with in either the interim decision itself or in other litigation involving the Russell tax avoidance scheme. Barber J disposed of most of the issues raised by reference to his earlier findings or those of the appellate courts.

Issue estoppel
Barber J noted that this was a repetition/recycling of the arguments by the objectors which had been dealt with over and over again in successive Russell cases. The Privy Counsel and the Court of Appeal had both dealt with this issue in O'Neil v CIR (2001) 20 NZTC 17,051 (PC) and Wire Supplies v CIR (2007) 23 NZTC 21,404 respectively as did Barber J himself in the interim decision. His Honour agreed with counsel for the Commissioner that repetition of arguments by the objectors is an abuse of process and saw no circumstances for not applying estoppel in the present case.

Evidential requirements - Peterson v CIR (2005) 22 NZTC 19, 098 (PC)
This issue had already been dealt with in the interim decision and Barber J refused to re-open that issue.

The effect of section 99(4) of the Act This issue had already been dealt with in the interim decision and Barber J refused to re-open that issue.

Statute bar
This issue had already been dealt with in the interim decision and Barber J refused to re-open that issue. Barber J noted that this issue was dealt with by the Privy Council in O'Neil and the Court of Appeal in Wire Supplies and agreed with counsel for the Commissioner that to allow repetition of these arguments by the objectors would be an abuse of process.

The standard allowance to each objector company in respect of the consulting fee
This issue was substantively dealt with in the interim decision, though certain allowances were made for companies which were previously struck off where there was leave to restore those entities to the companies register.

Whether the Commissioner had identified the scheme and had shown that it had the purpose or effect of tax avoidance
This issue was fully dealt with in the interim decision and in appellate courts and was not re-opened.

The exhaustion of the Commissioner's discretion issue
This issue was dealt with in the interim decision and in Wire Supplies. Barber J found that the objectors were simply trying to re-litigate old issues and declined to deal with it.

Additional taxes
Barber J noted this issue was comprehensively dealt with in Wire Supplies and also in Withey v CIR (No 2) (1998) 18 NZTC 13,732. These cases confirmed there was no right of objection in relation to additional taxes and those decisions applied to all of the Russell template objectors.

With regard to Consultant Applications, Mr Russell submitted the arrangement differed from the other template cases because it involved the purchase of a business from an Australian owner. Barber J declined to re-open this issue because the purchase of the business from an Australian vendor did not have any material effect on the outcome of the template application.

The objectors in the three groups were unavailable to show that there respective assessments were incorrect or flawed in any way. All assessments were confirmed.