A recent New Zealand court case decided in October is the second one in recent years[1] to go through the courts involving the determination of the permanent place of abode concept (‘PPOA’).
In this High Court case, the time bar was opened under Section 108(2) of the Tax Administration Act[2]. Consequently, the taxpayer’s returns were reassessed by the Commissioner of Inland Revenue for the years in question, which fell outside the four-year time bar that would otherwise have applied[3].
A permanent place of abode is one of two tests used in New Zealand for determining tax residency. The other test is the 183-days in any 12 month period test. The former test is based on all of the facts and circumstances in each case, whilst the latter test, the 183-day test is conducted by counting the number of days, and partial days, spent in New Zealand during a 12 month period.
The High Court ruled in the case of Van Uden v Commissioner of Inland Revenue [2017] that the taxpayer, Van Uden, did, in fact, have a PPOA in New Zealand during 2005-2009, and assessed the taxpayer for tax, interest and penalties on that basis that through a PPOA in New Zealand, he was tax resident of New Zealand.
The taxpayer’s position was that he did not have a PPOA in New Zealand. He had been spending an average of eight months of the year at sea, returning to his marital home in New Zealand for the remaining four months. Over the course of several years, there was maintenance work and a purchase of a neighbouring property occurred, and the High Court also considered the expenditure which had been found to have been connected to the maintenance and upkeep of their residence.
The following factors were taken into consideration in determining whether the taxpayer had a PPOA:
1. The continuity or otherwise of the taxpayer’s presence in New Zealand and in the dwelling.
2. The duration of that presence.
3. The durability of the taxpayer’s association with the particular place.
4. The closeness or otherwise of the taxpayer’s connection with the dwelling.
5. The requirement for permanency to distinguish merely transient or temporary places of abode.
The taxpayer was assessed a shortfall penalty for taking an unacceptable tax position.
[1] The 2015 Appeals Court case of Commissioner of Inland Revenue v Diamond outcome was that the taxpayer did not have a PPOA by virtue of having no intention to ever live in an investment property owned by the taxpayer, although the property was vacant.
[2](2) If the Commissioner is of the opinion that a tax return provided by a taxpayer—
(a) is fraudulent or willfully misleading; or
(b) does not mention income which is of a particular nature or was derived from a particular source, and in respect of which a tax return is required to be provided,—
the Commissioner may amend the assessment at any time so as to increase its amount.
[3]108 Time bar for amendment of income tax assessment
Except as specified in this section or in section 108B, if—
(a)
a taxpayer furnishes an income tax return and an assessment has been made; and
(b)
4 years have passed from the end of the tax year in which the taxpayer provides the tax return,—
the Commissioner may not amend the assessment so as to increase the amount assessed or decrease the amount of a net loss.