Honk tax deduction appeal lost

Honk Land Trustees (HLT) in 2011 challenged the legality of an Inland Revenue search and seizure operation. Photo / Janna Dixon

A company caught up in a controversial Inland Revenue raid has lost a High Court fight over a $1.1 million income tax deduction.

Honk Land Trustees (HLT) in 2011 challenged the legality of an Inland Revenue search and seizure operation. Among the sites targeted were the homes of former Ernst & Young tax partner David Tauber and former Dragon Den star Paul Webb. Both, at the time, were directors of the Honk group of companies and were being probed by IRD.

The pair and a number of companies in the group sought a court order requesting IRD return documents seized and to destroy or deliver any photos or videos taken.

The search challenge, however, was dismissed by both the High Court and the Court of Appeal.

HLT was back in the High Court in April for a fight with IRD over a $1.1 million income tax deduction it claimed for the 2005 financial year. The deduction related to a management fee which HLT paid to an associated company, Honk Land.

The Taxation Revenue Authority had already sided with the IRD over its decision to not allow HLT the deduction and to impose a 50 per cent penalty for taking an abuse tax position. HLT appealed to the High Court but Justice Rebecca Ellis refused to overturn the decision.

"It is difficult not to agree with the Commissioner that ... the fee was a rather unsophisticated ex post facto contrivance designed solely to effect the transfer of the precise amount of taxable income upon which the trust would otherwise have had to pay tax," she said in her decision.