EASY PARK LTD v THE COMMISSIONER OF INLAND REVENUE [2017] NZHC 1893

EASY PARK LTD v THE COMMISSIONER OF INLAND REVENUE [2017] NZHC 1893 [10 August 2017]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2016-485-549[2017] NZHC 1893UNDER The Tax Administration Act 1994IN THE MATTER of the Income Tax Act 2007BETWEEN EASY PARK LIMITEDPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 27-28 March 2017Counsel: G Harley and R L Goss for PlaintiffA B Goosen and C Hollingsworth for DefendantJudgment: 10 August 2017JUDGMENT OF ELLIS J[1] This case presents an old problem in a new context. The problem is the distinction between a receipt of a revenue nature and a receipt of a capital nature. The context is the receipt by the plaintiff, Easy Park Limited (Easy Park), of a lump sum in return for its agreement to accept the early surrender of a commercial lease. In other, similar, cases far greater judges than I have noted that the battleground on which they are fought is an intellectual minefield; the principles are elusive,analogies are treacherous, precedents appear to be but vague signposts pointing in different directions. The compass is said to be "judicial common sense".1 But one thing is clear. The factual context is all-important.1 My opening paragraph is taken unashamedly from the beginning of Templeman J's judgment inTucker v Granada Motorway Services Ltd [1977] 3 All ER 865 at 869. Its gist has been repeated in a number of the New Zealand appellate decisions which are discussed later in this judgment.Facts[2] During the 1980s and 1990s Mr Herman Rockefeller was the Chief Financial Officer of Brierley Investments Limited (BIL). While working at BIL he met Victoria Lawson who was then the Chief Accountant. They later married. In 1999, after BIL's fortunes had begun to wane, Mr and Mrs Rockefeller left the company. They moved to Melbourne during 2000. But through their New Zealand family trust interests they continued to be investors in New Zealand commercial rental property, held through various companies owned by those trusts.2[3] One of these companies was Easy Park, which was incorporated in August 2002. Its directors were Mr Rockefeller, a Mr Ferguson and, from 1 May 2003, Ms Marlene Stirling. Ms Stirling had been the Treasurer and Financial Controller at BIL and was friends with the Rockefellers. Ms Stirling was the only witness called in this case.[4] Easy Park owns two commercial buildings in Wellington. The company purchased both buildings with leases already in place. The leasing of these buildingshas always been Easy Park's sole business activity. Easy Park has no employees and occupies no premises. Ms Stirling provided (and continues to provide) all the Rockefeller family companies with what is essentially a serviced office facility and she has responsibility for managing the leases. Bayleys Property Services provide the day to day management services for the properties.[5] One of the two buildings owned by Easy Park is situated on the Esplanade, Petone. It consists of a ground floor and five storeys. It was purchased by Easy Park in April 2003 for $3.5 million. It was fully tenanted at the date of purchase. The other is what used to be known as the Whitcoulls Building at 312 Lambton Quay. It is that building which is at the centre of the present dispute. It is necessary to say a little more about the circumstances of its acquisition by Easy Park, and the events which followed.2 Currently, the companies own four commercial properties between them.Easy Park's purchase of the Whitcoulls Building[6] The building is a four-storey building (including the ground floor, which is usually referred to as "level 1"). From the late 1880s the Head Office of the printer/stationer/bookseller business of Whitcombe and Tombs Limited had operated from the 312 Lambton Quay site. New premises were built there in 1907 and Whitcombe and Tombs and, later, its successor, Whitcoulls Group Limited (WGL) have continuously occupied the building until quite recently.3[7] The building was substantially refurbished and strengthened during 1984 and 1985.[8] By agreement dated 28 June 2003 Easy Park purchased the Whitcoulls Building from WGL Retail Holdings Ltd for $7.7 million. Possession date was 28 August 2003. The sale and purchase agreement provided that levels 1, lA and 2, together with an annex, was subject to a lease dated 27 June 2003 between WGL Retail Holdings Ltd and WGL. The lease was for a term of 12 years and three months, running from 1 June 2003.4[9] The annual rent payable under the lease was $966,012 semi-gross (Whitcoulls paid the insurance). That was regarded by Easy Park as an attractive (eleven per cent) yield with further potential if levels 3 and 4 could also be leased.5[10] The evidence was that Easy Park's decision to purchase was based on the rental yield, the desirability of the building itself, its location on Lambton Quay and the long term anchor tenancy agreement with Whitcoulls, which was then considered a blue chip company. Ms Stirling said, and I accept, that Easy Park would not have purchased the building in the absence of these key features.3 The name "Whitcoulls" reflected the merger of Whitcombe & Tombs with its main competitor,Coulls Somerville Wilke.4 There were two rights of renewal, exercisable on 1 September 2015 and in 2021, with a final expiry date of 30 May 2023.5 The then risk free rate of return on ten year Government stock was six per cent and the bank first mortgage rate was 7.8 per cent.Earthquake issues[11] In 2003 there were no identified earthquake concerns with the building. But the following year, the Building Act 2004 (the BA) introduced a new earthquake building code which required all Territorial Authorities to develop a policy for identifying, and dealing with, earthquake prone buildings. The term "earthquakeprone" was defined to mean a building which fails to meet 34 per cent of the current New Building Standard (NBS).[12] In October 2007, Wellington City Council (WCC) wrote to Easy Park advising that its initial evaluation of the Whitcoulls Building had placed it at 11 per cent NBS and that it was would therefore be placed on the earthquake prone buildings register. The Council gave Easy Park six months to provide further information either confirming or disproving the building's earthquake prone status.[13] In July 2008, Easy Park commissioned structural engineering company Clendon Burns and Park to do a detailed seismic assessment report. That report concluded that the building was at 16 per cent of the NBS.[14] Mr Rockefeller died in early 2010.[15] In March 2010, WCC issued Easy Park with a notice under section 124 of the BA, requiring the company either to demolish or strengthen the building by March 2015. In July 2010, the Council extended the deadline by which Easy Park had to demolish or strengthen the building to 2025.[16] Two months later, there was a major earthquake in Christchurch. Ms Stirling said that this brought home to Easy Park's Board the need to strengthen the LambtonQuay property to at least 70 per cent NBS. Easy Park had preliminary discussions with WGL about the earthquake strengthening required. WGL supported the strengthening work but wanted to work with Easy Park around timeframes which, understandably, were of some importance to its retail business.[17] On 21 February 2011 Lifestyle Health & Fitness Centre (Wgtn) Ltd (Lifestyle Gym) entered a lease with Easy Park for levels 3 and 4 of the Whitcoulls Building.[18] On 22 February 2011 there was another significant earthquake in Christchurch.Whitcoulls' administration and the lease surrender[19] A few days before the second Christchurch earthquake, WGL went into voluntary administration.[20] In May 2011 the WGL business was sold to Whitcoulls 2011 Limited (W2011), a company that was part of the James Pascoe Group. The lease of the Whitcoulls building was assigned to the new owners.[21] In June 2011 it was publicly announced that Whitcoulls' Lambton Quaybusiness would relocate to nearby premises at 226 Lambton Quay. Following this announcement there were discussions between Easy Park and the new owners about the lease which ultimately resulted in a Deed of Surrender dated 7 February 2012. The Deed was orthodox in form and required W2011 to pay to Easy Park $1.1 million, which was around a third of the rent that would otherwise have been payable over the remaining lease term of 3 years and 3 months (the surrender date was 30 June 2012). The key "surrender" clause provided:In consideration of the lessee agreeing to pay the surrender consideration to be paid by the lessee to the lessor under this deed, the lessee, with effect from the date of the surrender, surrenders and assigns to the lessor all thelessee's interest under the lease and in the premises so that such interestmerges in the lessor's interest under the lease and in the premises and isextinguished and the lessor accepts such surrender.Subsequent events[22] In July 2011, prior to the conclusion of the surrender negotiations, Easy Park discussed marketing the premises with Bayleys' commercial leasing team. The conclusion was that Easy Park would need to proceed with earthquake strengthening in order to attract a quality tenant. It was decided that before embarking on amarketing campaign Easy Park should commission Dunning Thornton (leading structural engineers in earthquake strengthening) to advise what would be required to strengthen the Whitcoulls Building to the required standard. The purpose of the report was to enable costings and timeframes to be calculated.[23] Easy Park had discussions with one of the large supermarket chains about a potential tenancy but these did not develop. Then, in early to mid 2012 Easy Park was approached by Hallenstein Glasson Ltd (Glassons). In August 2012, Easy Park and Glassons reached an in principle agreement to lease levels 1, lA and 2.[24] The Agreement to Lease was signed on 5 December 2012. The new rent was $1.1 million per annum. Easy Park was responsible for insurance. The lease term was 9 years, commencing six weeks after practical completion of the strengthening work.6 Glassons' aim was to open a new flagship store in time for Spring 2013.[25] The terms of the Lease included that "the Landlord shall, contemporaneously with undertaking the Landlord's Works, carry out the as designed earthquake strengthening work to improve the Building's earthquake compliance to at least 85% of New Building Standard and shall use its best endeavours to obtain at least 95% of New Building Standard."[26] In February 2013 Easy Park reached an agreement with Lifestyle Gym to terminate the lease of levels 3 and 4 of the Whitcoulls Building. This enabled Easy Park to complete vacant possession and to commence the earthquake strengthening.[27] Easy Park commenced the refurbishment and earthquake strengthening of the Whitcoulls Building in early 2013. Glassons opened its new flagship store there in October 2013.[28] The strengthened and refurbished level 4 was eventually leased to Harrison Grierson in November 2014. Level 3 remains unoccupied.6 There is one six year right of renewal.Financial impact on Easy Park[29] Ms Stirling's evidence was that the above events had a significant financial impact on Easy Park. She said:(a) in the years ending 31 March 2010 to 31 March 2012 the Whitcoulls Building contributed on average about 65 per cent of Easy Park'sincome;(b) in the year ending 31 March 2013 the building contributed 35 per cent because of the termination of the Whitcoulls lease three months into that year;(c) the WGL lease contributed over 90 per cent of the rental income fromthe Whitcoulls' Building until March 2012. That reduced to 80 per cent in March 2013, because of the termination of the Whitcoulls lease three months into that year;(d) prior to income year ending March 2012, under the terms of the lease, Whitcoulls arranged and paid for the insurance on the property directly. In the March 2013 year, the insurance premium rose to $492,000.00 due to the impact of the Christchurch earthquakes. The lease entered into with Glassons post-surrender required Easy Park to meet this cost; and(e) the strengthening work cost $8.8 million, which Easy Park could only afford because of shareholder advances.77 By 31 March 2013, Easy Park's balance sheet recorded liabilities of nearly $15 million in shareholder advances.[30] Ms Stirling also said that the surrender of the Whitcoulls lease adversely affected Easy Park in that it:(a) lost the ability to control when it would earthquake strengthen the Whitcoulls Building (the Council had given owners of earthquake prone buildings 15 years to strengthen or demolish);(b) lost rental income for a period during which it could have used to investigate what was required to strengthen and refurbish the Whitcoulls Building and work out a suitable timeline; and(c) required it to enter post-earthquake strengthening leases with Glassons and Harrison Grierson on less attractive (gross) terms;Easy Park's tax dispute[31] In the financial statements filed with its income tax return for the year ended 31 March 2012, Easy Park treated the lease surrender payment made to it by Whitcoulls of $1.1 million as being a capital sum and therefore not assessable for income tax purposes. The covering letter to the Commissioner dated 14 September 2012 drew attention to the note in the accounts explicitly recording this treatment.[32] After the exchange of notices of proposed adjustment and response, on 27 May 2016 date the Commissioner reassessed the $1.1 million surrender payment as income to Easy Park. The tax assessed as payable by Easy Park was $308,000. A shortfall penalty of 10 per cent ($30,800) was also imposed.The capital/revenue dispute[33] In returning the lease surrender payment as capital, Easy Park was taking onthe Commissioner's publicly stated position that such payments would be treated asincome to the lessor. That position was recorded in a public ruling (BR PUB 09/06) made under s 91DB of the Tax Administration Act 1994 (the TAA).88 The statutory effect of a public ruling is that, where a person has applied a taxation law in the way stated in a ruling, the Commissioner is required to apply the law to the person in accordance with the ruling.[34] BR PUB 09/06 states that a lease surrender payment received by a landlord who is in the business of leasing property is income under s CB 1(1) of the Income Tax Act 2007 (the ITA) as an amount derived from a business. That section provides:(1) An amount that a person derives from a business is income of the person.(2) Subsection (1) does not apply to an amount that is of a capital nature.[35] The one exception acknowledged by the Ruling is where the lease is of suchsignificance to the landlord's business that its surrender constitutes the loss of a "structural asset" and so renders the payment a capital amount. BR PUB 09/06 is expressly stated only to apply to the treatment of lease surrender payments in the hands of the landlord.9[36] In these proceedings, the Commissioner stands by the position articulated in her Ruling. In other words, the Commissioner says that Easy Park is a commercial landlord in the business of leasing its premises to tenants. The lease surrender was a transaction undertaken in the ordinary course, or as an ordinary incident, of that business and the payment received as a result is therefore income. The Commissioner also says that the Whitcoulls lease was not of such significance toEasy Park's business that it could be considered a structural asset.[37] By way of post-script it may be noted in passing that the ITA has since been amended to provide explicitly that a lease surrender payment is income in the hands of the recipient.10The shortfall penalty dispute[38] The Commissioner has also determined that Easy Park is liable to pay ashortfall penalty as a consequence of taking an "unacceptable tax position" unders 141B of the TAA, which provides:9 As will be discussed below the decided cases make it relatively clear that, ordinarily, such a payment is not deductible by the lessee who makes it.10 See s CC 1C of the ITA, effective from 1 April 2013.(1) A taxpayer takes an unacceptable tax position if, viewed objectively, the tax position fails to meet the standard of being about as likely as not to be correct.[39] Section 3(1) of the TAA makes it clear that, when the filing of a tax return involves or requires an interpretation of a tax law or laws, the relevant tax position is taken at the time the taxpayer provide its return.[40] Section 141B(7) of the TAA provides that the matters that must be considered in determining whether the taxpayer has taken an unacceptable tax position include—(a) the actual or potential application to the tax position of all the tax laws that are relevant (including specific or general anti-avoidance provisions); and(b) decisions of a court or a Taxation Review Authority on the interpretation of tax laws that are relevant (unless the decision was issued up to one month before the taxpayer takes the taxpayer's tax position).[41] So, the Commissioner says, Easy Park took a tax position when it filed its 2012 tax return. A tax shortfall resulted. She says that, viewed objectively, EasyPark's position does not meet the test of being as likely as not to be correct. Shesays that because of the public ruling and because the relevant case law does not (inthe Commissioner's view) support the position taken.Issues[42] The issues in this case are as follows:(a) whether the receipt of the lease surrender payment is properly regarded as a capital receipt either:(i) on the basis of ordinary principles and the decided cases; or(ii) because in this particular case the Whitcoulls lease was of suchsignificance to Easy Park's business that it can be regarded asa structural asset; and(b) if the lease surrender payment was not a capital payment, whether the Commissioner was right to assess Easy Park as liable to pay a shortfall penalty on the grounds that the tax position it took in its return was more likely than not to have been wrong.The capital/revenue divide: some general principles[43] The often vexed and vexing question of what is capital and what is revenue is not capable of some bright line exposition. Nonetheless there are some general principles which are worth noting at the outset.[44] First, the characterisation of a receipt for income tax purposes will depend on what the receipt was calculated to effect from a practical and business point of view. Where the transaction involves the acquisition or disposition by a taxpayer of an asset, it is necessary to examine the nature of that asset in relation to that taxpayer'sbusiness. As Richardson J said in AA Finance Ltd v Commissioner of Inland Revenue:11Whether gains produced in a business are revenue or capital depends on the nature of the business and the relationship of the transactions producing the gain to the conduct of the business. A transaction may be part of theordinary business of the taxpayer or, short of that, an ordinary incident of the business activity of the taxpayer although not its main activity. A gain made in the ordinary course of carrying on the business is thus stamped with an income character.[45] Secondly, the character for income tax purposes of a receipt in the hands of the recipient is not determined by the character for income tax purposes of the expenditure made by the payer or vice versa. As the Court of Appeal said in Tasman Forestry Ltd v Commissioner of Inland Revenue (citations omitted):12There are numerous cases in which it has been made clear that the character of an expenditure (as on capital or revenue account) by a payer does not determine its character as a receipt in the hands of the payee. There is no general principle of symmetry in tax treatment. What is one taxpayer's trading stock may well be another's capital and vice versa.11 AA Finance Ltd v Commissioner of Inland Revenue (1994) 16 NZTC 11,383 (CA) at 11,391.12 Tasman Forestry Ltd v Commissioner of Inland Revenue [1999] 3 NZLR 129; (CA) at [26].[46] Similarly, and specifically in a receipts context, the Court of Appeal inBirkdale Service Station Limited v Commissioner of Inland Revenue said:13The question of whether the payment for an asset is received as capital or income turns in our view upon the nature of the asset in the hands of the seller. Is it sold as a capital asset or is the seller disposing of it in the carrying on of the operations of a business or in pursuance of a particular venture? Are the retailers in their particular circumstances to be seen as having disposed of a part of their businesses, as the retailers did in Coia,Dickenson and Dunlop's, or did they accept the sums of compensation as an incident of the carrying on of their businesses without any change of a structural nature having occurred?[47] Thirdly, the character of a receipt is not to be determined by the measure or method used to quantify the payment.14 Accordingly, in the present case, even if the amount of lost rental played a role in determining the quantum of the lease surrender payment, it does not inexorably follow that the surrender payment should be taxed in the same way as the rent itself.[48] Fourthly, the characterisation of a particular transaction for income tax purposes is to be determined by examining the bargain made and recorded by the parties in its factual setting. It is not an exercise that should involve any kind of economic equivalence analysis.15 The true nature of a transaction is to be ascertained by reference to legal arrangements actually entered into and carried out.[49] And lastly, in a case such as the present, care must be taken not to permit property law concepts to dominate the interpretation and application of tax legislation.16Lease and contract surrender payments: the decided cases[50] Although I bear in mind Templeman J's warning about the treachery of precedent and analogy in the capital/revenue arena, I think there is some elucidation to be had from the decided cases. There are essentially two interrelated streams of13 Birkdale Service Station Ltd v Commissioner of Inland Revenue [2001] 1 NZLR 293 (CA) at [53].14 Regent Oil Co Ltd v Strick [1966] AC 295 (HL) at 349; Commissioner of Inland Revenue v Wattie [1999] 1 NZLR 529 at 537–538 (PC).15 At 537.16 Commissioner of Inland Revenue v McKenzies (NZ) Ltd [1988] 2 NZLR 736 (CA) at 742.relevant authorities. The first involves the deductibility of payments made to or by lessees on the acquisition or surrender of a lease. The second involves the taxability of lump sums paid or received in relation to the creation or termination of other contracts.[51] A chronological review begins with British Insulated and Helsby Cables Ltd v Atherton which concerned the deductibility of a lump sum paid to establish the nucleus of a pension fund for employees of the company.17 Viscount Cave LC established the following principle:18 when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.[52] The payment was therefore held to be capital in nature and not deductible by the payer/employer.[53] The next authority in point of time is Cowcher v Richard Mills and Company Ltd.19 A fishmonger had several shops, one of which was not profitable. The lease of that shop involved a rack rent lease for fourteen years, which was due to expire in 1923. In 1916 the lease was surrendered in consideration of the sum of £1,812 10s to be paid by instalments of £250 each year. The instalments were paid regularly until 1921, when the lessor accepted a payment of £600 in satisfaction of all further liability. The £600 payment for the early surrender of a rack rent lease was held to be capital in the hands of the payer and so not deductible to the fishmonger.[54] Mallett v The Staveley Coal and Iron Company Ltd concerned two mining leases.20 One had a 63 year term, running from 1882 and the other was for 21 years, running from 1919. Each reserved a minimum rent and mining royalties. In 1923 both leases were surrendered in return for a payment made to the lessor. Again, the issue was whether those payments were deductible by the lessee. The Court of Appeal held that they were not. At page 787 Lawrence L J said:17 British Insulated and Helsby Cables Ltd v Atherton [1926] AC 205 (HL).18 At 213–214.19 Cowcher v Richard Mills and Company Ltd (1927) 13 TC 216 (KB).20 Mallett v The Staveley Coal and Iron Company Ltd (1927) 13 TC 772 (CA).It must be borne in mind that [the lessee's] trade does not consist ofacquiring mining leases and selling those mining leases. The Company'sbusiness is that of colliery proprietors, and its trade consists of the winning and the selling of coal. For the purposes of carrying on that trade it has acquired numerous leases, including the two leases in question in this case. Those two leases, to my mind, clearly constitute a part of the fixed capital assets of the Company, and none the less so because they were acquired without the payment of any cash premium.[55] And similarly he said at page 788:Whatever may be the accurate description of the payment, it seems to me that it is a payment made in respect of the Company's fixed capital and not apayment made for the purpose of its trade of winning and selling coal so as to form a proper debit item against the incomings of that trade.[56] Anglo-Persian Oil Co Ltd v Dale was not a lease case.21 There, the taxpayer had appointed agents to act for it for a fixed period of years in return for commission payments. Later the agreements were cancelled upon the taxpayer making a lump sum payment to the agents. In further elucidating Lord Cave's Atherton principle, Rowlatt J said that a qualifying advantage would need to be:22 a benefit which endures, in the way that fixed capital endures; not a benefit that endures in the sense that for a good number of years it relieves you of a revenue payment. It means a thing which endures in the way fixed capital endures. It is not always an actual asset, but it endures in the way that getting rid of a lease or getting rid of onerouscapital assets endures.[57] It was held that the payment in question did not bring any asset into existence and nor could it properly be said to have brought into existence an advantage for theenduring benefit of the company's trade. The sum was therefore held to be deductible by the payer. Lawrence LJ said:23It is not open to doubt that under ordinary circumstances where a trader, in order to effect a saving in his working expenses, dispenses with the services of a particular agent or servant, and makes a payment for the cancellation of the agency or service agreement, such a payment is properly chargeable to revenue; it does not involve any addition to or withdrawal from fixed capital; it is purely a working expense.21 Anglo-Persian Oil Co Ltd v Dale (1931) 16 TC 253 (CA).22 At 262.23 At 269.[58] And at page 272 he distinguished the decision in Mallett, saying:The Company's oil concessions in Persia are part of the Company's fixed capital, and if a sum were paid for the cancellation of such a concession on the ground that it was onerous that would, no doubt, be a capital expenditure within the principles of the decision in Mallett. ... The contract to employ an agent to manage the Company's business in Persia, however, in no senseforms part of the fixed capital of the Company, but is a contract relatingentirely to the working of the Company's business, the method of managingwhich may be changed from time to time. Neither the contract itself, nor a payment to cancel it, would, in my opinion, find any place in the capital accounts of the Company.[59] The first of the few authorities dealing with the character of a receipt (rather than a payment) following a contractual termination or surrender is Van den Berghs Ltd v Clark.24 That case concerned a lump sum payment received in consideration for the taxpayer company consenting to certain profit-pooling arrangements being terminated thirteen years in advance. The House of Lords held that the cancelledagreements related to the whole structure of the company's profit-making apparatus and essentially regulated the company's activities. Thus the agreements were a capital asset of the company and the receipt was a capital receipt. After referring to most of the authorities to which I have referred above, Lord MacMillan said:25The three agreements which the appellants consented to cancel were not ordinary commercial contracts made in the course of carrying on their trade; they were not contracts for the disposal of their products or for the engagement of agents or other employees necessary for the conduct of their business; nor were they merely agreements as to how their trading profits when earned should be distributed as between the contracting parties. On the contrary the cancelled agreements related to the whole structure of theappellants' profit-making apparatus. They regulated the appellants'activities, defined what they might and what they might not do, and affected the whole conduct of their business. I have difficulty in seeing how money laid out to secure, or money received for the cancellation of, so fundamental an organisation of a trader's activities can be regarded as an incomedisbursement or an income receipt.[60] Greyhound Racing Association (Liverpool) Ltd v Cooper is a lessor receipt case.26 It involved the assessability of a payment made to a taxpayer as consideration for the early surrender of a lease of a race track it owned. The tenant had gone into liquidation. The taxpayer agreed to the surrender on the condition that24 Van den Berghs Ltd v Clark [1935] AC 431 (HL).25 At 442–443.26 Greyhound Racing Association (Liverpool) Ltd v Cooper [1936] 2 All ER 742 (KB).a new company was formed to take over the lease and the sum paid by the tenant was equal to the difference between the old and new rents. Because the payment represented the future rent foregone, the receipt was held to be on revenue account.27Any support to be derived for the Commissioner's position from this decision is necessarily limited, due to that clear linkage.[61] In Regent Oil Co Ltd v Strick the House of Lords held that lump sum payments by an oil company to retailers for exclusivity arrangements were of a capital nature.28 The payments were affected by the retailers leasing their premises to the oil company in return for the lump sum payment and a nominal rent, with a sublease back by the oil company to the retailers, also at a nominal rent. The four leases the subject of the appeal were for 21, 21, 10 and 5 years respectively.[62] Lord Reid observed that a premium paid by a lessee for a lease had always been regarded as capital in nature (in the hands of the lessee) because it was the price paid for acquiring an interest in land. He said:29It was argued that a rent and a premium paid under a lease are paid for different things – that the premium is paid for the right but that the rent is paid for the use of the subjects during the year. I must confess that I have been unable to understand that argument. Payment of a premium gives just as much right to use the subjects as payment of a rent and an obligation to pay rent gives just as much right to the whole term of years as payment of a premium. A lessee who only pays rent has the same right to assign the rest of the term – perhaps for a large capital sum if values have gone up – as has the lessee who has paid a premium.[63] Lord Wilberforce put it slightly differently. Referring to the High Court ofAustralia's decision in Hallstroms Proprietary Ltd v Federal Commissioner of Taxation30 he said:31I start, then, with a consideration of the nature of the relevant payments made by Regent in the light of the criteria stated by Dixon J under paragraph (c). This formulation is useful in pointing the distinction (as to which much discussion arose in the argument) between a premium paid for a lease – which produces an asset for future use – and rent paid under a lease27 To the same effect is the Canadian decision in Monart Corporation v Minister of National Revenue (1967) CTC 263.28 Regent Oil Co Ltd v Strick [1966] AC 295 (HL).29 At 315–316.30 Hallstroms Proprietary Ltd v Federal Commissioner of Taxation 61 CLR 337 at 363.31 –Regent Oil Co Ltd v Strick, above n 27, at 348–349.which is for current use: the first being a capital and the latter a revenue payment. I find it helpful here. The distinction is clear and intelligible, and though a complication may arise where a premium or payment for an asset is made payable periodically by instalments or when a single payment is made which is, or is described as of rent in advance, that need not concern us here, for the payments were neither described as, nor were they of, this latter nature. They were lump sums, paid at the start of the transactions to procure the immediate emergence of an asset or advantage, enjoyment of which was secured for a period. They were not, and did not represent the aggregation of, current payments made for the day-to-day use of or continuation of an advantage. They appear at first sight to bear the character of capital payments for an asset.[64] And a little later on (citations omitted):32Next, as regards the nature of the asset or advantage gained. There are possibly two ways of regarding this. The first is to treat the payment as made for a lease of from five years to 21 years, ie, for a legal estate in land; the second, which I prefer, and which fits most closely to what Dixon J said in the Hallstroms case .., is to treat it as made for the granting of a lease which was (as part of the single bargain) to be subject to a sublease containing an exclusivity covenant by the sublessee with provisions making that covenant effective. So regarded, the payment was for a solid recognisable asset, evidently (to my mind) of a capital nature. It was transferable, in a limited market no doubt, but in that market it was valuable: it was a source or foundation for the earning of profits, through orders for petrol to be placed under it: it can fairly be described as a piece of fixed capital which is to be used in order to dispose of circulating capital.[65] Lord Wilberforce returned to the fray in Tucker v Granada Motorway Services Ltd.33 That case involved a payment made in 1974 to amend an onerous (50 year) lease, which had been granted in 1964. The payment was held to be of a capital nature even though the lease was not assignable and had no balance sheet value. At page 107 his Lordship said:I think that the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. Extensions from this are, first, to regard money spent on getting rid of a disadvantageous asset as capital expenditure and, secondly, to regard money spent on improving the asset, or making it more advantageous, as capital expenditure.32 At 350.33 Tucker v Granada Motorway Services Ltd (1979) 53 TC 92.[66] And at page 108 Lord Wilberforce spoke of the distinction between payments to get rid of onerous leases and payments to get rid of commercial contracts. After referring to Anglo-Persian he said:The payment there was in order to free the company from a long-term agency agreement which had become onerous to the company. Now there may not be much commercial difference between a payment of this kind and a payment to get rid of an onerous lease. But since the courts have acceptedand worked the "identifiable asset" test the decision was no doubt right in law. The test may be to some extent arbitrary, but it provides a means which the courts can understand for distinguishing capital and income expenditure and I think that we would be wise to maintain it.[67] The line of relevant New Zealand cases begins in 1988 with Commissioner of Inland Revenue v McKenzies (NZ) Ltd.34 That decision was concerned with whether a lease surrender payment made by a tenant whose lease had 38 years to run was a deductible expense to the tenant. A full bench of the Court of Appeal overturned theHigh Court's finding that it was. The key passage from Richardson J's judgment isas follows:35An appropriate starting point is to consider the character of the asset involved. The finding by Tompkins J, not challenged on appeal, is that the lease was itself a capital asset of the company. A lease will be held on revenue account if the taxpayer trades in leases so that the leases form part of its trading stock or are otherwise regarded as circulating capital. Here, as in the case of most taxpayers, the lease was part of the profit making structure of the business. The omission of the lease from the balance sheet is not surprising. Nothing had been paid for it on capital account and in accounts prepared on an historical cost accounting basis there was no cause to enter it in the books on capital account at zero value. Its non-appearance in the balance sheet could not in the circumstances affect its true character.Next, in an uncomplicated case the characterisation of the asset acquired or disposed of will determine the character or quality to be attributed to the costs of acquisition or disposal, as the case may be. Just as moneys spent on the acquisition of a capital asset are prima facie regarded as capital expenditure, so too the proceeds of the disposal of a capital asset or the costs of its disposal where it has a negative value should in the ordinary course have the same character.If, as here, the lease is a capital term, then in an uncomplicated case where a lump sum payment is seen to be the cost of disposing of that capital item, the expenditure involved ought to be regarded as capital expenditure. The interest of the lessee confers reciprocal rights and obligations. The lessee has the right to possession and the obligation to make the rental payments and otherwise perform the terms and conditions of the lease. The surrender of a34 Commissioner of Inland Revenue v McKenzies (NZ) Ltd, above n 15.35 At 741–742.lease is a surrender of the whole interest of the lessee under the lease and it is fallacious to focus narrowly on the extinguishment of the rental obligation without recognising that at the same time the right of possession has been relinquished. Unless there are other complicating factors present which lead to a different conclusion, a lump sum payment made in consideration of the surrender of a lease held on capital account ought to be regarded as an expenditure of capital.[68] After then discussing whether there were any special considerations that might lead to a different conclusion, and finding that there were not, Richardson J said:On this brief analysis the payment made by the company in consideration of the surrender of the lease ought in principle to be regarded as an expenditure of capital.[69] Commissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd is the only other case to deal with a lump sum termination payment in the hands of the recipient.36 Borthwicks had entered into an agreement with Canterbury Frozen Meats (CFM) for the sale of one of its freezing works. As part of the consideration for the contract CFM gave marketing rights to Borthwicks for 20 years. Later, the arrangement was varied and Borthwicks surrendered parts of its supply and agency rights in return for $2.25 million. Applying Van den Berghs andAtherton both Gallen J in the High Court and the Court of Appeal held that the long term supply and marketing arrangement was part of Borthwicks' capital andorganisational structure and that compensation paid for giving up its rights under that arrangement was a capital receipt, not income.[70] Finally, in Commissioner of Inland Revenue v Wattie, a firm of accountants were paid a lump sum as an inducement to enter into an onerous lease for 12 years at a rent above market rent.37 In overturning the High Court and holding that the inducement was a capital payment in the hands of the lessee, the majority in the Court of Appeal endorsed the "identifiable asset" test and that (as in McKenzies) the lease was a capital asset in the hands of the lessee.38 At 13,304 the Court noted that:36 Commissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd (1992) 14 NZTC, 9,101 (CA).37 Commissioner of Inland Revenue v Wattie [1999] 1 NZLR 529 (PC).38 Wattie v Commissioner of Inland Revenue (1997) 18 NZTC 13,297 at 13,302. The Court must ask, in terms of the Hallstroms test, what the receipt was calculated to effect from a practical and business point of view. As the transaction was concerned with the acquisition by the firm of an asset, it is necessary to examine the nature of that asset in relation to its business. The result is not to be determined by the economic consequences for the taxpayers of the receipt. Rather, it depends upon the commercial effect produced by the transaction – the effect which naturally flows from the contract.[71] The Privy Council confirmed that the inducement payment was of a capital nature. The Privy Council endorsed the Atherton principle and the decision by the Court of Appeal in McKenzies, saying (citations omitted):39In Commissioner of Inland Revenue v. McKenzies (NZ) Ltd the Court of Appeal, applying this principle, held that a lump sum payment made by a lessee to a lessor in order to secure the termination of an onerous lease with a substantial period still to run was of a capital nature. In the present case the $5 m was paid by the lessor to the lessee for undertaking an onerous lease for a substantial period. The majority of the Court of Appeal decided that thesame principle applied. They described the payment as "a negative premium" and as "the mirror image" of the payment in McKenzies. Their Lordships are in full agreement with this view of the matter. In this case, asin Strick, there is no conflict between the legal nature of the payment and the practical and business effects it was intended to secure.Is the lease surrender payment a capital receipt in Easy Park's hands?[72] The authorities canvassed above are clear that, ordinarily, payments made to induce a lessee to lease particular premises from which to conduct its business will, in the hands of the lessee, be an affair of capital for tax purposes. That is because such payments are made with a view to bringing into existence an asset (the lease)for the enduring benefit of the lessee's trade. The lease conveys to the lessee the leasehold interest in the land which is essential to the lessee's profit making structurebut which does not, itself, directly yield a profit.[73] Similarly, the cases make it clear that payments made by a lessee to extricate itself from a lease of business premises (a capital asset to the lessee) which has become (for whatever reason) onerous, will also be regarded as being capital in39 Commissioner of Inland Revenue v Wattie, above n 35, at 539.nature. And so it also is for payments made by a lessee which effect an advantageous amendment to a lease.[74] Mr Harley's key submission was that these principles should ordinarily also apply to landlords who make or receive payments in relation to creating, modifying or terminating leases. So, he said, for a business such as Easy Park's – investment in commercial property for rental – its leases will be held on capital account, absent special circumstances (none of which are said to be relevant here).40 Particular reliance is placed on the passages from the Court of Appeal's decision in McKenzies (NZ) Ltd v Commissioner of Inland Revenue, which I have set out at [67]–[68] above.[75] Mr Harley said that there is no difference as between landlords and tenants, in terms of receipts and payments made on the grant or early termination of leases, because an application of the "identifiable asset" approach (most notably articulated by Lord Wilberforce in Tucker41) means that leaseholds, which are interests in land, will generally be fixed capital. The contention is that a leasehold interest, almost by its very nature, has the same character in the hands of both the landlord and the tenant, (albeit that the respective rights and obligations are reciprocal).[76] Mr Harley advanced "five key principles" in support of this contention:(a) When the tenant makes a lease surrender payment to the landlord, so surrendering up the reversion in the right to the exclusive occupancy, it is conveying back to the landlord an identifiable capital asset (being the conveyance of the early reversion, usually a valuable right in land but, because it is onerous, it is sometimes called a "negative" asset) . The payment by the tenant is capital.40 In particular, he said that leases may not be held on capital account where the particular taxpayer holds leaseholds as part of its trading stock – trading in interests on land, or where the payment/receipt is a pre-payment of the rent due in advance.41 Although the approach seems to have its origin in BP Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia [1966] AC 224 (PC).(b) When the landlord makes a payment to the tenant, so as to induce the tenant to leave early by surrendering the lease, the landlord is purchasing the reversion of the right to exclusive occupation and, being an interest in land, that payment (sometimes called an"inducement payment" or "lease surrender payment") by the landlord is capital.(c) Payments and receipts made in relation to identifiable capital assets within the same business are treated in the same way, because of the nature of the capital assets themselves. It follows that, for a landlord, any payment or receipt concerning its leasehold being acquired, modified or terminated early is capital.(d) Where a landlord or tenant has a very large scale rental business, so that it is often entering, terminating or modifying lease terms with payments made in consideration of such steps, that factor is irrelevant. Each lease is a capital asset to that very large business.(e) Where either a lease premium or lease surrender payment relates to a lease term across a number of years, the payment also reflecting the bargain as to the annual rent and other rights and benefits passing, it cannot be said that such an amount is "profit" derived in the year of receipt. Accordingly, the payment cannot have any business income attribute, absent special statutory rules.Discussion[77] I begin by noting that there is no New Zealand decision in which it has been held that a lease surrender payment received by a landlord is a capital receipt. That is perhaps not surprising given the existence of BR PUB 09/06 and its predecessors. And even the very few overseas authorities (in which the Courts have said that the surrender receipt is held on revenue account) are limited to cases in which it has been held that the payment simply constitutes the rent foregone. That is not the present case.[78] I also record at the outset that I am unable to accept that Richardson J'sdecision in McKenzies clearly lends either direct or indirect support for theproposition that the "identifiable asset" approach means that leases must generally be regarded as fixed capital in the hands of both lessees and lessors. Rather, it seems to me that the following points arise from that decision:(a) first, the issue in McKenzies was whether a lease surrender payment made by a tenant was deductible (ie as a payment made on revenue account). The final sentences in the passages quoted at [67] and [68] above makes the ambit of the decision and, in my view, the preceding discussion, clear;(b) similarly the reference in Richardson J's analysis to the lease forming part of the profit making structure of the business must be seen as relating to the specific business of the lessee. And in McKenzies it was not disputed that the lease of premises by the lessee for the purpose of conducting its business from those premises was an affair of capital. That position is entirely consistent with other cases referred to in the judgment;(c) the reference in McKenzies to leases being held on revenue account"if the taxpayer trades in leases so that the leases form part of thetrading stock" is (in my respectful view) also clearly concerned with a case where leases are traded by someone other than the owner of the freehold estate (ie not the lessor). That is confirmed by reference toMallett which was also concerned with a payment made by the lessee and which appears to be the first case in which that exception was referred to;(d) next, and as already noted above, the cases make it clear that there is no necessary symmetry in terms of the tax treatment of payments and receipts;(e) that said, however, Mr Goosen rightly accepted that it is arguable that the length of the lease in McKenzies (50 years), and the length of time left to run (38 years) is a factor which would favour treating the lease and the lease surrender payment as an affair of capital in the hands of both the lessee and the lessor. But the lease in the present case was not of that kind;(f) in any event, as the Court of Appeal said in Wattie (in accordancewith Richardson J's more general statement of principle inAA Finance Ltd) where the transaction giving rise to the payment or the receipt involves the acquisition or disposition by the taxpayer of an asset or advantage, it is necessary to examine the nature of that asset or the advantage in relation to its particular business in order to determine whether it has the character of capital or revenue.[79] By and of itself that last point suggests that it cannot be right to say that"identifiable assets" or assets of a specific quality or kind will always be regardedfor income tax purposes as an affair of capital, regardless of the nature of the business in which the relevant taxpayer is engaged. What is required is an examination of what the relevant transaction and the receipt was calculated to effect from a practical and business point of view in the specific case at hand. And as just noted, if the transaction involves the acquisition or disposition of an identifiable asset then what is required is an examination of the nature of that asset, viewed in the context of the relevant taxpayer's particular business.[80] Here, I accept that the relevant asset is the lease. I accept that in W2011'shands the lease was a capital asset, for the reasons given in all the cases. But I am unable to accept that it is a capital asset in the hands of Easy Park. That is because the lease is not part of its underlying business structure and is not only indirectly connected with producing revenue. Rather, the lease is the very mechanism which generates profit for the company; it is Easy Park's core business. By and of itselfthat suggests that the lease is an affair of revenue in Easy Park's hands.[81] More specifically and in terms of the surrender transaction itself, I acknowledge that what the agreement effected from Easy Park's perspective was thereceipt of $1.1 million in return for its agreement to:(a) forego 3.3 years' of rent to which it would otherwise be entitled.(b) accept the surrender and assignment of W2011's interest under thelease and in the premises so that:(i) in property law terms, those interests merged with Easy Park'sand were extinguished in the fee simple of the land); and(ii) in practical terms, Easy Park regained the right to occupy the premises and to do with them as it wished including, in particular, to lease them again.[82] But it seems to me that the resumption by Easy Park of its leasehold interest does not constitute the creation of an asset or advantage of an enduring nature in therelevant sense. Easy Park's sole business is as a lessor of commercial properties. Sowhile from W2011's perspective the payment was made in order to rid itself permanently of the lease and the leasehold, from Easy Park's perspective (andsubject only to the possible exception discussed below) the reversion of one of its leasehold interests must, almost by definition, be temporary. As indeed it proved to be.[83] It seems to me that (without deciding) there might be two possible exceptions to this. The first is if the lease had been surrendered near the beginning for a very long term.42 No question of that arises on the present facts. The second is if the interest that was returned to Easy Park as a result of the surrender was so damaged or different from the original leasehold interest that had been granted under the lease that Easy Park could not then easily enter into a new lease for the building or, at least, a lease on broadly similar terms. As I understood it, Mr Harley's submission42 On the basis that a very lengthy leasehold interest might be said to come close to a freehold interest (see [78](e) above).was that this is the case here because the need for earthquake strengthening rendered the lease a "negative asset" and the return of the leasehold "onerous" to Easy Park.[84] I acknowledge that the lease was, at the time of surrender, "onerous" fromW2011's perspective for the simple reason that it no longer wished to occupy the premises. And, absent any spectacular rent rise in the commercial leasing market, the early return was, in a limited sense, inevitably onerous (in a lost revenue sense) to Easy Park. But that was what the compensation was for.[85] But I am not prepared to accept that the need for earthquake strengthening made the lease or the leasehold returned to Easy Park onerous in any additional, relevant, way. There is no direct connection between the lease and the required strengthening and no evidence to suggest that the proposed strengthening played anypart in W2011's desire to surrender. From Easy Park's perspective the strengthening work would have had to be done anyway. It is impossible to see how it could have been undertaken without disrupting any existing tenancy, as indeed was the case with the Lifestyle Gym tenancy which was terminated early (at Easy Park's behest) in order to do the work. And even if Easy Park had simply waited until the end of the Whitcoulls lease the evidence was clear that Easy Park was unlikely to be able to find a new lessor without doing the necessary work. While Easy Park may well have preferred to have had more choice about the timing of the remediation it cannot unequivocally be said that, beyond the loss of rental in the meantime (for which compensation as paid) it would have been more advantageous to the company had it been able to wait until the lease naturally came to an end, three years' later.[86] Similarly, I do not consider that the fact that the new lease with Glassons was on somewhat less favourable terms than the earlier lease can make a difference here.[87] In short, the lease surrender was clearly not ideal from Easy Park'sperspective. The parallel (but in my view unconnected) need for significant earthquake strengthening made the surrender even less so. Nonetheless it seems to me that Easy Park made the very best of the confluence of a set of rather unfortunate circumstances with which it was faced.[88] But for the reasons I have articulated those unfortunate circumstances do not turn the lease into a capital asset or the surrender payment into an affair of capital inEasy Park's hands. The "identifiable asset" approach does not mean that, where therelevant asset is a contract between two parties, lump sum payments paid in connection with either its creation or its termination should receive the same tax treatment in the hands of both. The fact that the contract happens to convey an interest in land makes no difference to that position. Here, the lease surrender was simply an ordinary, if unwanted, incident of Easy Park's core and only business of commercial leasing.[89] Lastly, I record that I am unable to accept that, in purchasing the Whitcoulls Building Easy Park paid any discrete or identifiable price for the lease or, if it was, that it would make any difference to the view I have expressed above. I acknowledge that it was important to Easy Park that an anchor tenancy was in place and that the existence of the lease with Whitcoulls was an important part of the deal. But that does not change the character of the lease when it is viewed in the context ofEasy Park's (commercial leasing) business.[90] By way of conclusion, I comment as follows on Mr Harley's five principles:(a) I agree that a lease surrender payment made by a tenant is (usually) capital in nature in the hands of the tenant because the lease itself is a capital asset. But I do not agree that that means that the lease is a capital asset in the hands of the landlord;(b) as far as the second principle is concerned, I do not need to decide whether or not a payment made by a landlord to his tenant to induce him to surrender a lease, is a capital payment in the hands of the landlord, although I doubt that that is so, for reasons similar to those already given;(c) Mr Harley's third principle is predicated on the proposition that alease or a leasehold interest in land is an (identifiable) capital asset in the hands of both a landlord who is in the business of leasing and atenant who uses the premises for the purpose of some quite separate business. I do not accept that proposition for the reasons already given;(d) I am unable to agree with the fourth principle either. I do not accept any general proposition that that leases or leasehold interests are capital assets in the hands of a taxpayer who is in the business of leasing, however large or small; and(e) and the fifth principle appears to be predicated on the proposition that because the lease surrender payment broadly reflects lost rent and other benefits over a number of years, it cannot be treated as income in relation to the year in which it was received. That does not seem tome to sit easily either with Mr Harley's contention that the surrenderpayment is not to be viewed simply as rent foregone (which I accept is supported by the case-law) or (more specifically) with theAnglo-Persian decision (where a lump sum payment on termination of a contract was found held to be deductible in the year it was made).[91] It necessarily follows from what I have already said that I do not consider that the lease surrender was so fundamental and permanent that it could be said to have affected the structure of Easy Park's business in the Van den Berghs andBorthwicks sense. In those cases the relevant payments were received as compensation for the taxpayers' permanent loss of structural assets or rights; their businesses would never be anything like the same following the termination of the relevant contracts.[92] Here, although it is true that the Whitcoulls lease was permanently lost to Easy Park, the revenue producing asset that was the subject of the lease (the leasehold) could be, and was, made the subject of another lease. The critical right to occupy had not been taken away and could be effectively "reused". While the unrelated need to earthquake strengthen was a significant (but unavoidable) cost to Easy Park, and its post-surrender business was not quite as profitable as itspre-surrender business, its core business remained recognisably and substantially the same, post-surrender.[93] Accordingly Easy Park has not persuaded me that the Commissioner'sassessment was wrong. I consider that the lease surrender payment was an affair of revenue, not capital, in Easy Park's hands.Shortfall penalty[94] I have noted the terms of the relevant shortfall penalty provision at [38] and [40] above. As the wording of s 141B makes clear, the lens through which an unacceptable tax position is assessed is objective rather than subjective. Thetaxpayer's actual belief in its correctness is irrelevant.43 But so too is the fact that I have ruled against the Easy Park. That is not determinative of the question. If thetaxpayer's argument "can objectively be said to be one that, while wrong, could beargued on rational grounds to be right", shortfall penalties will not be appropriate.But it must be a matter on which reasonable minds could differ.44 As the Court of Appeal has noted, there is "some element of fuzziness in the underlying concept".45[95] I find the present case a difficult one. As I have said, there was no authority which tells squarely against the position taken by Easy Park. Public Rulings are not binding on taxpayers and the very existence of a ruling arguably suggests that its subject matter may be difficult or controversial. Moreover BR PUB 09/06 expressly acknowledged that arguments similar to those advanced before me (based on dicta inMcKenzies) had previously been raised. The capital revenue divide is notoriously oblique and, as my discussion above indicates, were it not for the clarity wrought by the recent amendment to the ITA, it is conceivable that circumstances could yet arise where a lease surrender payment might properly be regarded as an affair of capital in the hands of the lessor. Mr Harley's submissions were not irrational; they were persuasively advanced.43 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 at [184].44 At [185] citing Walstern v Commissioner of Taxation (2003) 138 FCR 1 (FCA) at [108].45 Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23 NZTC 21,323 at [168].[96] As well, there is the point that Easy Park could have avoided any issue about a shortfall penalty all together by filing its 2012 tax return in accordance with BR PUB 09/06 but then issuing a notice of proposed adjustment once the Commissioner had issued her assessment. I assume that it chose not to do so, because of the conceptual artificiality (and arguable dishonesty) of that approach.46 But in any event it is clear that the course it took was not actuated by some desire to "slip one past" the Commissioner; indeed Easy Park's accountant specifically drew her attention to the issue. So it is difficult to see that Easy Park's actions here offended against the policy that shortfall penalties are designed to promote.[97] On balance, therefore (and I do not forget that the onus is on the taxpayer) I consider that no shortfall should be imposed here.Result[98] Easy Park's substantive challenge to the Commissioner's assessment fails;the lease surrender payment was received by the company on revenue account. But the assessment is amended as to the imposition of a shortfall penalty. The penalty of $30,800 is quashed.[99] Notwithstanding that Easy Park has had a small measure of success on the penalty point, I consider that the Commissioner is entitled to her 2B costs. I trust they can be agreed between counsel.__________________________ Rebecca Ellis J46 By "dishonesty" I mean that a taxpayer who signs a tax return is required to declare that he or she believes it to be "true and correct".