Opinion divided on Krukziener trust tax case

Property developer Andrew Krukziener. Photo / Gilda Kirkpatrick

Businesses or individuals who have received loans from family trusts should not be worried that withdrawals could be classified as income and taxed, New Zealand Institute of Chartered Accountants says.

Auckland-based property developer Andrew Krukziener is currently appealing a Taxation Review Authority decision that loans he received from trusts be classified as income.

In November, the authority successfully argued that loans of $5 million paid to Krukziener between 1991 and 2002 from his trusts should be assessed as income.

The judgment against him noted he did not receive a salary during this period and paid very little tax.

Institute tax director Craig Macalister said the majority of New Zealanders would not be in the same position as Krukziener, and therefore should not be worried about the implications if he loses his appeal.

Macalister said this specific case was an "extreme one". He said this type of tax case would probably not be applied to a straightforward loan from a family trust.

Wellington-based lawyer James Coleman said if Krukziener won the appeal it would be very much against "the run of play".

"I can see why he [Krukziener] is making the argument, it makes the judge stop and think. I just don't think there are going to be many people in the extreme situation he is in, with such large amounts over a long period of time ..."

Coleman said the IRD would be more interested in situations where people have used company or trust structures for income and then claimed family support credits. But Bell Gully lawyer Jarrod Walker said the decision, if Krukziener loses, would have a wide-ranging impact.

"Many New Zealanders borrow from their company or trust vehicles to fund their living expenses. Our concern with the TRA decision was the implication that borrowing funds in this manner, especially if done regularly, could lead to challenge by the IRD on avoidance grounds, and that the advances, even if repayable, could be treated as taxable income," he said.

Walker's colleague Mathew McKay said the potential significance of the decision in this case could affect a significant number of taxpayers.

"If correct, it represents a further conservative shift in tax avoidance jurisprudence. We await the outcome of any appeal with interest."