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10 Jun 2014
Appeal Status
No right of appeal

Sovereign assurance refused leave to appeal to the Supreme Court

2014 case note - Sovereign Assurance refused leave to appeal to the Supreme Court - Accrual rules, capital/revenue, insurance and reinsurance contracts.

Sovereign Assurance Company and Others v Commissioner of Inland Revenue [2014] NZSC 68


The Supreme Court refused Sovereign Assurance's application for leave to appeal the Court of Appeal decision in Sovereign Assurance Company Limited v Commissioner of Inland Revenue [2013] NZCA 652.

Impact of decision

An appeal to the Supreme Court is not as of right. Applicants have to request leave from the Supreme Court in accordance with the criteria set out in section 13 of the Supreme Court Act 2003. Those criteria include whether a substantial miscarriage of justice has occurred, whether the case involves a matter of general or public importance or has general commercial significance. Each application made to the Supreme Court will turn on its own facts.


Sovereign Assurance Co Ltd sought leave to appeal the decision of the Court of Appeal in Sovereign Assurance Company and Ors v Commissioner of Inland Revenue [2013] NZCA 652.

The Court of Appeal upheld the Commissioner of Inland Revenue's assessments for the 2000 to 2006 years that applied the accruals regime to the refundable commission transactions resulting from reinsurance treaties entered into by Sovereign.


The Supreme Court dismissed Sovereign's application for leave stating:

  • Both Dobson J and the Court of Appeal rejected Sovereign's contention as to the limited application of the accruals regime. As well, Dobson J held that in accordance with ordinary principles, the refundable commissions were not income and that accordingly the repayments were not deductible. Two members of the Court of Appeal panel reached the same conclusion. In part, this was because they treated them as loans (see [122]-[124] of the Court of Appeal decision) but their conclusion was also based on the premise that the refundable commissions could not be "counted as gains completely made" (an expression which comes from an Australian case). In this latter respect, their conclusions were to the same effect as those of Dobson J. [9]
  • It follows that if the legal arguments which Sovereign wishes to advance as to the displacement of the accruals regimes and the categorisation of the arrangements as loans were to succeed, Sovereign still faces the hurdle of findings on the capital/revenue issue. These findings could be categorised as being factual but even if they are not, we see no good reason for allowing a second appeal. The relevant principles are well established, if not always easy to apply. The question raised by the case is thus one of application rather than principle and there is no appearance of a miscarriage of justice. [10]

Income Tax Act 1994