Appeal Court raps IRD for 'futile' case

Court of Appeal judges have criticised the Inland Revenue Department for raising futile arguments over the tax status of the Wellington Regional Stadium Trust.

The department's commissioner is appealing against a High Court ruling that the trust's dominant purpose is not to make a profit and it is, therefore, exempt from paying tax. The trust is a charitable organisation that makes profit only to reinvest in running the Westpac Stadium.

IRD lawyer Andrew Beck said the trust was a council-controlled trading organisation and should pay tax on its profits.

But all three Court of Appeal judges who heard the appeal made the point that it was not set up as a business to make a profit and could never be expected to make one if it had to pay a return on the $40 million in Wellington City Council and Greater Wellington Regional Council interest-free loans that funded the stadium.

Beck said the trust was claiming it was doing extremely well. It carried on as a business, had a business plan, produced annual reports and made a profit on its activities.

Justice Susan Glazebrook said hospitals, the Red Cross and other charities operated that way as well.

The only way it was able to operate as a business was that it had free money.

It wasn't a business in any sense of the word and there would never be a business if it was required to provide a return on the capital.

When Beck agreed that if it was required to pay a return on capital invested it would be unlikely to make a taxable return in the foreseeable future, Justice Mark O'Regan said it begged the question as to why the commissioner was taking the case.

He said the trust could not operate if the court declared it to be a trading organisation. That would be a nonsensical outcome and suggested the action was futile.

Justice O'Regan said the reality was that the stadium cost $100 million to build and that would never have happened if it had been funded on commercial terms.

Justice Bruce Robertson said the commissioner's submission had an air of unreality and the suggestion these people were trying to make money defied reality. To say the trust was there to make a profit was drawing a long bow. The court has reserved its decision.

- NZPA