Surgeons win right to fight tax case in Supreme Court

Geoff Harley, legal counsel for Gary Hooper and Ian Penny. Photo / Mark Mitchell

Two Christchurch orthopaedic surgeons who lost a tax avoidance case in the Court of Appeal earlier this year will soon be fighting the decision in the Supreme Court.

New Zealand's highest court yesterday granted Ian David Penny and Gary John Hooper's application for leave to appeal the Court of Appeal's decision.

In June the Court of Appeal - by a two to one majority - decided Penny and Hooper's adoption of a company structure, with the non-payment of market salaries, amounted to tax avoidance.

That decision went against an earlier win by the surgeons in the High Court, which was then appealed by the IRD.

According to the judgment, the ground on which the approval was granted was "whether the Court of Appeal was right to find that the appellants had failed to establish that their use of their corporate and family trust structures did not constitute taxable arrangements for the purposes of BG1 of the Income Tax Act 1994".

Geoff Harley, legal counsel for Hooper and Penny, said the Supreme Court appeal would go ahead in the early part of next year.

The surgeons restructured their businesses so they were carried on by companies - Penny in 1997 and Hooper in 2000 - allowing their earnings to be taxed at the company rate of 33 per cent, lower than the top personal rate.

Penny saved $37,000, $34,000 and $31,000 in tax over three consecutive years, while Hooper saved $21,000, $24,000 and $20,000.

Neil Russ, tax partner for law firm Buddle Findlay, hoped the Supreme Court would "inject a bit more certainty and rigorousness" into what constitutes tax avoidance.

An IRD spokesman said the department welcomed any opportunity for clarification but "in the meantime we will continue applying the law as it has been explained by the Court of Appeal".