GREAT NORTH MOTOR COMPANY LIMITED (IN RECEIVERSHIP) V COMMISSIONER OF INLAND REVENUE [2017] NZCA 328

GREAT NORTH MOTOR COMPANY LIMITED (IN RECEIVERSHIP) V COMMISSIONER OF INLAND REVENUE [2017] NZCA 328 [31 July 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA618/2016[2017] NZCA 328BETWEEN GREAT NORTH MOTOR COMPANYLIMITED (IN RECEIVERSHIP)AppellantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 4 July 2017Court: Harrison, French and Asher JJCounsel: M L Lennard for AppellantM Deligiannis and K I S Naik-Leong for RespondentJudgment: 31 July 2017 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Great North Motor Co Ltd (in rec) filed income tax returns claiming deductions from liability for losses of about $21.7 million suffered from businessactivities between 1996 and 2011. The Commissioner of Inland Revenue originallyallowed Great North's claims but later amended her assessments and disallowed them. She was satisfied that the transaction underlying Great North's claims was a tax avoidance scheme, and imposed shortfall penalties for adopting an abusive tax position. Great North challenged the reassessments and penalties in the High Court.[2] Great North does not contest Downs J's finding that its losses were claimed under a tax avoidance arrangement.1 But the company contends that six of theCommissioner's 12 reassessments were time-barred by s 108(1) of the Tax Administration Act 1994 (the TAA) as they were undertaken outside the statutory limitation period of four years. It now appeals the Judge's finding that, even if the time bar had expired, the tax returns were fraudulent or wilfully misleading and thus exempt from a limitation defence. The company also appeals the Judge's alternativefinding that the bar does not apply because time did not accrue during a period when it was struck off the register, despite a provision under the Companies Act 1993 deeming the retrospective existence of companies upon restoration.[3] While the tax-avoidance finding is not in issue, it will be necessary for us to recite its essence in order to give context to the argument on the time-bar issues remaining for determination.Background[4] Great North was incorporated in October 1959 originally under the name of Zupps Motors Ltd. Its principal shareholder of 99.99 per cent was Glen Eden Holdings Ltd (Glen Eden) which by virtue of various interlocking arrangements through Downsview Nominees Ltd (Downsview) is controlled by John George Russell.2 At all relevant times Mr Russell through Glen Eden — for which he acted as sole director, accountant and secretary — held Great North's shares on trust forAnthony Radisich who operated the company's business as a used car yard.31 Great North Motor Company Ltd (in rec) v Commissioner of Inland Revenue [2016] NZHC 2708, (2016) 27 NZTC 22-079 [HC judgment].2 At [5]–[6].3 At [9].However, as Downs J observed, Great North has not sold a car since 1993 or perhaps earlier.4[5] Mr Russell was the guiding hand behind the group of interwoven companies centred around Downsview.5 He is a retired accountant now in his eighties. His seemingly endless disputes with the Inland Revenue Department are chronicled in numerous decisions in all jurisdictions dating back at least 30 years.6The battleground is whether transactions implemented according to Mr Russell'svarious design templates were tax avoidance arrangements. It cannot be controversial to observe that the Commissioner has invariably prevailed.[6] In August 1993 Great North issued a debenture to Glen Eden (the Glen Eden debenture) to secure an advance of $380,277 repayable on demand. Interest was payable at any rate specified by the lender but only when demanded. In the absence of specification, the default interest rate was set at 28 per cent per annum. Downs J'sfinding that Great North was insolvent when granting the debenture is not challenged.7[7] On 10 December 1993, four months after Glen Eden's advance, Great North ceased trading. In 1994 and 1995 Mr Russell advised the Commissioner that Great North had no assets or income or funds available to comply with PAYE deductions.8On 1 September 1994 Great North was placed in liquidation.[8] On 20 April and 28 June 1995 Mr Russell filed income tax returns for Great North claiming a combined loss, principally for interest payable under the Glen Eden debenture, totalling $1,785,076.12. On 14 August 1995 the Commissioner reassessed Great North's returns of income, disallowing the lossesclaimed by the company for failing to provide source documents which verified interest expenditure. And on 21 December an investigator for the Commissioner4 At [15].5 See [5].6 See [44]–[45] of this judgment. See also Russell v Commissioner of Inland Revenue [2012] NZCA 128, (2012) 25 NZTC 20-120.7 HC judgment, above n 1, at [11].8 At [12].asked Mr Russell to explain why he had filed the 1995 return when Great North had ceased trading and was in liquidation.[9] On 8 May 1996 Great North was removed from the register but was restored on 1 July 1997 on application by Glen Eden and Mr Russell. In Downs J's view restoration was designed to enable the company to pursue litigation with the Commissioner over its tax returns for 1991 to 1995; the Commissioner had disallowed claimed deductions and losses on the basis of inadequate documentary proof.9 But nothing came of it and Great North did not recommence business or do anything else to generate income.10 On 24 June 1998 Great North was again placed in liquidation.[10] A lengthy period of inactivity followed until 25 May 2005 when Glen Eden assigned the debenture to Kensington Developments Ltd. Kensington itself had been in receivership since 1994, with Mr Russell as its receiver and sole director. Downs J was satisfied that Kensington paid nothing to acquire the debenture,11confirmed by Mr Russell's reports as its receiver since 1994. By then Great North'sindebtedness to Glen Eden had been recorded at $5.9 million. On 29 May Great North was again struck off the register.12 On 13 June Mr Russell gave notice purporting to have appointed himself as Great North's receiver from 26 May. A few days later the Companies Office advised Mr Russell that his notice of appointment as receiver of a struck-off company could not be registered.[11] In July 2005, even though the company was by then struck off and had not been trading for more than 10 years, Mr Russell filed tax returns for Great North for the years ending 31 March 1996 to 31 March 2005 inclusive. Unpaid interest of $7,206,855.66 calculated under the Glen Eden debenture since inception was claimed as expenditure and associated losses. Receivers' costs and accounting fees were also claimed.9 At [14].10 At [15]–[16].11 At [17].12 At [18].[12] Downs J described what happened next:[20] The Commissioner issued determinations the same year allowing theclaimed expenditure and losses. However, these determinations were madeautomatically rather than in consequence of any deliberative process; indeed,they were computer generated. But they were determinations nonetheless.From 11 October 2005, the Commissioner issued re-assessmentscountermanding that earlier stance. However, it is almost certain Mr Russellhad anticipated as much:(a) On 27 August 2010 he and Glen Eden applied to reinstate Great North to the companies register, and it was reinstated from 8 October 2010.(b) Then, on 5 January 2011 Mr Russell filed tax returns for 2007–2009.(c) And on 10 January 2011 in response to a letter from the Commissioner, Mr Russell informed the Commissioner re-assessment was time-barred because of the operation of s 330 of the Companies Act 1993.(Footnote omitted.)[13] Mr Russell filed further returns for Great North in 2011, first for the 2007 to 2009 tax years — he had earlier filed one in July 2006 for the 2006 tax year — and later for the 2010 tax year, and again in 2012 for the 2011 tax year. In April 2011 the Commissioner started an investigation into Great North's returns and on 12 July 2012 issued a notice of proposed adjustment. The Commissioner concluded that Great North had engaged in tax avoidance. On 14 October 2014 she reassessed thecompany's allegedly misleading tax returns, disallowing its claims for all 12 relevant years and imposing shortfall penalties because Great North had adopted an abusive tax position contrary to s 141D of the TAA.[14] We should add that on 4 December 2012 Kensington transferred its interest in the Glen Eden debenture to Timberton Investments Ltd.13 Mr Radisich is its owner. Mr Russell signed the deed of assignment as receiver for both Great North and Kensington. Timberton paid $600,000 for the debenture, and also acquired Great North's tax losses at a rate of 15 cents per dollar of loss.[15] Downs J's affirmative finding of a tax avoidance arrangement was not,however, decisive. Great North asserted that the Commissioner's reassessments13 At [22].were time-barred: her original computer-generated assessments would stand unless she was able to show that the four-year time bar provided by s 108 of the TAA did not apply for the 12 income tax years from 31 March 1996 to 31 March 2008.[16] Section 108 materially provides:108 Time bar for amendment of income tax assessment(1) 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.(2) If the Commissioner is of the opinion that a tax return provided by a taxpayer—(a) is fraudulent or wilfully 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.[17] Downs J rejected Great North's limitation defence on both alternative statutory grounds. His primary finding under s 108(2)(a) was that Great North had provided tax returns which were fraudulent or wilfully misleading.14 His second or alternative finding was that as a matter of statutory construction s 108(1) did not apply during the years in which Great North was removed from the register.15In reaching this conclusion the Judge found that s 330 of the Companies Act, which deems that a company restored to the register shall have continued in existence through the period of removal, did not affect the Commissioner's ability to amendthe assessments. He rejected Great North's argument that the effect of s 330 was to14 At [77].15 At [108]–[109].validate the filing of the company's returns to the dates on which they were filed, with the result that the four-year limitation period had actually expired before the Commissioner's reassessments.[18] We shall address the issues in the same order after reviewing in a little more detail the circumstances of the High Court's tax-avoidance finding.Tax avoidance[19] In accordance with settled authority, Downs J adopted a two-step approach to the tax-avoidance inquiry.16 First, he inquired whether Great North was entitled to treat interest incurred under the Glen Eden debenture as a deductible expense.17 That question had to be answered affirmatively.18 However, the Judge was satisfied that in allowing interest to be deducted as a business-related expense Parliament intended the interest charged and payable to align with the genuine cost of expenditure.19[20] Second, Downs J considered the manner in which the arrangement was carried out. We repeat that Great North was insolvent when granting the Glen Eden debenture in August 1993. Mr Russell, who was central to the transaction, knew when the charge was given that Great North had incurred losses of $366,398, negative shareholder funds of $511,558, assets of $110,845 and liabilities of $622,403.20 The company was generating no income from which to service interest liability or repay the principal. By year's end Great North had ceased trading with further losses of $137,014.[21] The debenture's terms reinforced its artificiality. Principal was repayable on demand and at any rate advised by Glen Eden.21 The default rate was 28 per cent per annum. The debenture effectively placed Great North under Mr Russell's control assoon as the monies advanced became payable regardless of whether the company16 At [29]–[31] applying Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue[2008] NZSC 115, [2009] 2 NZLR 289 and Penny v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 43.17 Income Tax Act 2007, s DB 7(1).18 HC judgment, above n 1, at [36].19 At [36]–[37] applying Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23 NZTC 21,323 at [126].20 HC judgment, above n 1, at [39].21 At [41].defaulted. Its terms were inconsistent with those of "rational business actors seekingto minimise cost and risk".22[22] Downs J also focused on the parties' relationship. Great North and Glen Eden were part of the same group of companies and the ownership structure was circular.23 There was no nexus between the claimed deductions and any genuine economic consequences for Great North, which never paid any interest.24 It would never be able to service the debt or repay principal. Great North had been in receivership since 2005 but had not sold a vehicle for more than 20 years. There was no reason for it to remain on the register and its continued existence there was a contrivance.25[23] The Judge answered in the negative the ultimate question of whether the arrangement viewed with commercial and economic realism made use of the specific deduction provisions in a manner consistent with Parliament's purpose.26 The Judge held the Commissioner concluded correctly that the arrangement was entered into for the purpose of tax avoidance, "and [was] a rather obvious example of its kind".27 Its objective was reflected in the fact that, out of the accumulated losses of $21,717,813.79 claimed by Great North, various companies connected with Mr Radisich had applied $6,571,066.72 to diminish their tax liabilities.28Fraudulent or wilfully misleading returnsHigh Court judgment[24] Downs J rejected Great North's limitation defence primarily on the groundthat under s 108(2) of the TAA Great North's tax returns were wilfully misleading,and Mr Russell knew that was the case. Thus the four-year time bar did not apply. The Commissioner was entitled to amend her assessments of Great North's liabilityto tax at any time.22 At [43(b)].23 At [44].24 At [47].25 At [50]–[51].26 At [55].27 At [57].28 At [24].[25] The Judge was satisfied that Mr Russell either had actual knowledge that the arrangement constituted tax avoidance or, applying the test of subjective recklessness, he must have known that it was highly likely tax avoidance.29He relied on five factors to support this finding:30(a) Mr Russell was an experienced accountant with expertise in tax arrangements who understood the concept of tax avoidance;(b) Mr Russell knew all the features of the arrangement which made it tax avoidance;(c) Mr Russell completed and filed the returns, representing that they reflected Great North's true tax position when they did not;(d) by filing returns while Great North was struck off and then applying to restore it to the register some years later Mr Russell executed "adeliberate and cynical attempt to frustrate the Commissioner's abilityto re-assess Great North's true tax position"; and(e) on at least one occasion during trial Mr Russell came close toacknowledging that the arrangement's true purpose was taxavoidance.[26] The Commissioner's s 108(2) power to amend an assessment can be exercised "at any time so as to increase its amount" if she "is of the opinion" that a tax return "is fraudulent or wilfully misleading". The Commissioner formed that opinion here. Great North challenges Downs J's affirmation of that opinion as correct. In determining Great North's appeal we must resolve a threshold questionabout the appropriate standard of appellate review of the Commissioner's opinion.29 At [77].30 At [71]–[75].Standard of appellate review[27] Mr Lennard for Great North submitted that the correct approach for the hearing authority, in this case the High Court, when determining a challenge to theCommissioner's reassessments under s 138P of the TAA is to stand in the Commissioner's shoes and consider afresh whether the return in question is fraudulent or wilfully misleading. The hearing authority must substitute its own view for the Commissioner's view if it considers that she has erred. Mr Lennard accepts that Great North carries the burden of proving it did not submit a wilfully misleading return. Ms Deligiannis did not in her written synopsis contest Mr Lennard's submission, which correctly states the ratio of this Court's decision inCommissioner of Inland Revenue v Legarth.31[28] However, counsel drew our attention to a later decision of this Court which might stand as authority for a lower threshold of appellate scrutiny, limited simply to one of review of the evidential foundation or reasonableness of the Commissioner'sopinion. In Wire Supplies Ltd v Commissioner of Inland Revenue an issue of construction of a statutory time bar also arose.32 Coincidentally the appeal arose from a decision of the High Court upholding the Commissioner's determination thatschemes devised by Mr Russell, promising to convert the taxable net profits of companies into tax-free capital receipts for the shareholders, were tax avoidance transactions. The Commissioner had reassessed returns filed by Mr Russell more than four years after the time bar had expired. Under s 25(2) of the Income Tax Act 1976, the predecessor to s 108 of the TAA, the Commissioner was entitled to reassess the taxpayer notwithstanding the four-year time bar "where, in the opinion of the Commissioner, the returns made are fraudulent or wilfully misleading".[29] In dismissing an argument for Wire Supplies that the Commissioner'sdelegate had not held the requisite opinion, even though the certificate said otherwise, this Court stated:[87] There is an onus on the taxpayer to persuade the court, on the balance of probabilities, that the Commissioner (or the Commissioner's31 Commissioner of Inland Revenue v Legarth [1969] NZLR 137 (CA).32 Wire Supplies Ltd v Commissioner of Inland Revenue [2007] NZCA 244, [2007] 3 NZLR 458.delegate) did not honestly hold the opinion, that he or she misdirected himself or herself as to the legal basis upon which the opinion was to be formed, or that the opinion was one which was not reasonably open to the decision maker on the information available to him or her: Auckland Institute of Studies Ltd v Commissioner of Inland Revenue (2002) 20 NZTC 17,685 at [102].The Court affirmed, however, its power to inquire into the question of whether a basis for the opinion existed.33 An example was given of evidence of the taxpayer'sproduction of a return of income where the Commissioner's opinion had certifiedotherwise.[30] At first blush, Wire Supplies might seem contrary to Legarth, which was not apparently cited in argument. However, we are satisfied that in Wire Supplies this Court was answering a limited submission for the taxpayer, addressed solely to the evidential adequacy of the Commissioner's opinion. The apparent differences in the approaches adopted by our Court in those two cases are reconcilable when the circumstances of Legarth are examined more closely.[31] In Legarth the relevant statutory provision also excluded the time bar if"in the opinion of the Commissioner the returns so made are fraudulent or wilfullymisleading".34 The taxpayer, a farmer, had omitted to return income from wool sales. In the Commissioner's opinion the taxpayer's returns were wilfullymisleading. Counsel had agreed before the Board of Review, the relevant hearing authority, that the issue for its determination was confined to whether the Commissioner was justified in forming his opinion. The Board answered that question affirmatively. On appeal to the then Supreme Court, Perry J held that the Board had acted on an unduly narrow view of its powers; and that it should have examined de novo the question of whether the taxpayer had furnished a wilfully misleading return of income.35 The inquiry was not to be limited to whether the Commissioner was justified on the evidence in forming his opinion.33 At [90].34 Land and Income Tax Act 1954, s 24 (since repealed and ultimately replaced by s 108 of the TAA).35 Legarth v Commissioner of Inland Revenue [1967] NZLR 312 (SC).[32] On appeal to this Court, all three Judges in Legarth separately agreed with Perry J on this point.36 In hearing and determining an objection the Board had all theCommissioner's functions and directions, and was required to redetermine the question upon which the Commissioner had formed his opinion, although the taxpayer carried the burden of proving affirmatively that he had not furnished a wilfully misleading return. The rationale for that requirement is that the hearing authority is not exercising a narrow appellate function. Instead, as Mr Lennard submits in the present case, it stands in the Commissioner's shoes in hearing a challenge under s 138P of the TAA to a "disputable decision" — that is, a tax assessment or some other decision of the Commissioner under a tax law37 — with the fullest benefit of access to all material which might properly be relevant to the Commissioner's opinion.[33] We were referred to a number of High Court decisions addressing the same or a similar issue, some of which sought to resurrect the light-handed approach rejected in Legarth.38 Williams J carefully reviewed these authorities in Edwards v Commissioner of Inland Revenue.39 We agree with his conclusion, followingLegarth, that the hearing authority's reconsideration of the Commissioner's time-bar ruling is not restricted to whether her opinion under s 108(2) was honestly held and reasonably available on the evidence.40 The hearing authority is obliged to review the ruling de novo.[34] In our view the approach adopted in Legarth is consistent with the purpose of s 108(2). It reflects the Commissioner's obligation to form an opinion on the face of a tax return that it is fraudulent or wilfully misleading. She has neither the time nor the resources to conduct a full evidential inquiry. In the event that the taxpayer challenges an amendment made more than four years after the Commissioner'sassessment, the hearing authority must be able to substitute its own view for the36 Commissioner of Inland Revenue v Legarth, above n 31, at 146 per Turner J, 149 per Woodhouse J and 149 per North P.37 Tax Administration Act 1994, s 3.38 Auckland Institute of Studies Ltd v Commissioner of Inland Revenue (2012) 20 NZTC 17,685 (HC); Vinelight Nominees Ltd v Commissioner of Inland Revenue HC Auckland CIV-2005-404- 2774, 22 July 2005; and Vinelight Nominees Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,519 (HC).39 Edwards v Commissioner of Inland Revenue [2016] NZHC 1795, (2016) 27 NZTC 22-064 at [66]–[76].40 At [84].Commissioner's opinion of the correct liability to tax having considered the application of the relevant legislation and the relevant evidence. That is what the challenge procedure entails.41 The taxpayer, however, bears the burden of proving to the civil standard that its returns were not fraudulent or wilfully misleading, which is an exacting requirement where the Commissioner has made compelling findings that the underlying affairs were designed to avoid tax.Test for "fraudulent or wilfully misleading"[35] While accepting that Great North must discharge its onus on the balance of probabilities, Mr Lennard submits that the hearing authority — and this Court on appeal — must recognise the inherent improbability of a chartered accountant submitting a fraudulent tax return.42 The Court must examine the evidence carefully to satisfy itself that the allegation is proven. In this case, Mr Lennard says, the correct approach where Mr Russell has given evidence on oath, which the Commissioner submits should be disbelieved, is to consider the inherent improbability of Mr Russell committing a serious offence for the sake of somebodyelse's company's tax case. By this we infer that Mr Lennard is referring to the benefits flowing to Mr Radisich and his companies from Great North's accumulatedtax losses.[36] Counsel agreed that Downs J correctly adopted the test for determining whether a return was "wilfully misleading" as settled by Turner J in Babington v Commissioner of Inland Revenue (No 2).43 Proof of mere negligence or breach of duty is not enough. What is required is knowledge that the return is materially inaccurate coupled with an intention to mislead. Subjective recklessness is sufficient where it is demonstrated that the person submitting the returns had no reasonable grounds for believing that the returns were correct, where the only inference reasonably available is that he or she must have adverted to the probability or41 See generally Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153.42 Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 (SC) at [100]–[102] applying Re HH (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 (HL) at 586.43 Babington v Commissioner of Inland Revenue (No 2) [1958] NZLR 152 (SC) at 156–157.possibility that the returns were false, and was reckless in the sense of not caring whether they were correct or not. Downs J applied this test.44[37] The Commissioner's claim that Great North's tax returns were fraudulent or wilfully misleading requires proof of two sequential elements. The first and largely factual element is whether a particular return is misleading, which is best answered by using the statutory term "misleading" rather than Turner J's near-synonym of"materially inaccurate". Would the returns on their face mislead the Commissioner? In the present appeal the question can be answered shortly, and affirmatively. Our focus is on July 2005, and again in 2006 and 2007, when Mr Russell filed Great North's returns for the preceding 12 years.[38] The 31 March 2005 return is an example. It answered a specific question about Great North's receipt of income from business activities by stating that thecompany's losses were $1,302,591. When added to losses brought forward of $5,904,294, the amount of $7,206,885 was given as accumulated losses. Financial statements were not included with that return but a rudimentary profit and lossaccount for the 2004 year simply recorded "interest" of $1,017,258 as an item ofloss.[39] Inherent in all returns was Mr Russell's representation that Great North'slosses were suffered as a result of a genuine business activity; and that its interest liability had been incurred and in fact paid pursuant to an orthodox lending arrangement between borrower and lender. But Great North never actually paid any interest under the Glen Eden debenture or suffered an analogous liability.45The company had been insolvent throughout the debenture's life. Mr Russell'srepresentation could not have been further from the truth. And there could not have been a cruder mechanism, nor a more artificial result.[40] The second element relates to Mr Russell's state of mind. Is he able to satisfy us that he had reasonable grounds for believing the returns were not misleading? Mr Lennard submits that Downs J conflated Mr Russell's knowledge of the factual44 HC judgment, above n 1, at [68]–[78].45 Alesco New Zealand Ltd v Commissioner of Inland Revenue [2013] NZCA 40, [2013] 2 NZLR 175 at [83].circumstances with his legal assessment of tax avoidance. It could not be assumed in the face of his denial, Mr Lennard says, that Mr Russell must have known the scheme was a tax avoidance arrangement. He identifies Mr Russell's idiosyncraticbelief in his superior knowledge of the law as evidence of a genuinely held view that the returns were correct. While he accepts the self-serving nature of this proposition, which Downs J rejected in the High Court,46 Mr Lennard submits that it was a sufficient rebuttal of a charge of wilfully misleading the Commissioner.[41] Mr Lennard accepts, however, that most tax practitioners would have either known that the factual matrix resulted in a tax avoidance scheme or at least harboured great doubt. His concession is proper but telling against Mr Russell. An idiosyncratic and unwavering self-belief does not immunise from independent scrutiny the state of mind of the author of tax returns. Mr Russell is not above the law. The test must be objective. Mr Russell was the creator of the underlying transaction. He knew its terms and history. He orchestrated it for the sole purpose of creating fictitious tax losses.[42] Mr Russell knew that Great North was not trading and had never traded during the life of the Glen Eden debenture; and that the losses claimed were not for genuine business expenditure. On 14 July 1994 he had advised the Commissioner that Great North had no assets or income or funds to make PAYE deductions,requesting that the debts be written off as "irrecoverable". It follows that he must have known that the company had no means of meeting its interest liabilities under the debenture, which was, as Downs J found, an artifice or contrivance.47The documentary structure masked the reality that the security did not govern, andnever had governed, the parties' rights and obligations.[43] We agree with Ms Deligiannis that Mr Russell's successful reinstatement ofGreat North to the register in 2010 is evidence of actual fraud in this context. Great North had not existed in law since it was struck off five years earlier. Despite his purported appointment as Great North's receiver on 26 May 2005, Mr Russell took no steps to apply for restoration in the intervening period or to complete the46 HC judgment, above n 1, at [27(b)] and [28].47 At [49]–[51].company's receivership. The company had no purpose in filing tax returns for the period from 2006 to 2010 when it was not carrying on business. Mr Russell'sapplication in applying for restoration was designed not only to defeat the time bar but also to provide a pretext for filing returns when the company had no legitimate reason for doing so.[44] Mr Russell is an experienced accountant and man of commerce. He is also an experienced tax litigant and, we must infer, well versed in the relevant legislation and case law. Mr Russell knew or must have known that Great North's claim for losses of $7,206,855 was false and that the returns would never withstand the Commissioner's challenge. Long before 2005 the Taxation Review Authority and High Court had held that a number of the so-called "Russell template" schemes were tax avoidance arrangements.48 Mr Russell and his corporate associates brought a range of technical and procedural appeals with limited success. But their substantive appeals to this Court and the Privy Council invariably failed, with the appellate courts condemning Mr Russell's schemes in direct and robust terms.49 The pattern of judicial rejection of his schemes could not have been more discernible. Mr Russell knew or must have known that the crude tax minimisation scheme implemented for Great North was doomed to suffer the same fate of a finding of tax avoidance. If Mr Russell did not, he acted with wilful blindness to the law's reality.[45] By January 2011 when he filed the next set of tax returns Mr Russell was aware of further decisions adverse to his stance.50 Yet he persisted in filing returns claiming increasing deductions for losses. His conduct in reinstating Glen Eden to the register and then filing further returns for 2007 and 2009 was obviously designed to pre-empt the Commissioner's reassessments, and invoke the time bar. It is compelling evidence of his knowledge that the reassessments would be unfavourable for Great North. The only inference available in the present case is that he knew the returns were misleading.48 See for example KJ Cummings Ltd v Commissioner of Inland Revenue [1998] TRNZ 36 (HC); and TRA Case 7 [1998] TRNZ 57.49 See Miller v Commissioner of Inland Revenue [1999] 1 NZLR 275 (CA), aff'd [2001] 3 NZLR 316 (PC); and M & J Wetherill Co Ltd v Taxation Review Authority [2003] 1 NZLR 577 (CA).50 Wire Supplies Ltd v Commissioner of Inland Revenue, above n 32.[46] Having approached the issue afresh, we are now independently satisfied that all returns filed by Mr Russell for the relevant years were wilfully misleading within s 108(2)(a). Great North has fallen well short of discharging its onus of satisfying us that its returns were not wilfully misleading. We are satisfied to the contrary that at the very least Mr Russell acted recklessly throughout and in wilful disregard to the certainty that the Commissioner would disallow the company's losses as being claimed under a tax avoidance scheme. Accordingly there is no basis to disturb theeffect of the Commissioner's opinion and the assessment de novo of Downs J. In our judgment the Commissioner's amendments to her assessment of Great North'sliability to tax were not time barred under s 108(1).Section 330 of the Companies Act 1993[47] Our conclusion on the effect of s 108(2)(a) of the TAA is dispositive of this appeal. However, Downs J found in the alternative that the retrospective validation of Great North's existence, deemed by its 2010 restoration to the register, did not have the effect of validating the company's returns to the time of filing in 2005, 2006 and 2007. As a result, the four-year time bar did not apply or was suspended, and had not expired when the Commissioner made her reassessments. This meant, for the purposes of s 108, that the company had not remained on the register since 2005, despite its legal reinstatement for that period, and time for reassessing the 2005 and following years' returns did not start running until 8 October 2010.[48] We disagree with the Judge's conclusion, and must explain briefly why.[49] Section 330 of the Companies Act provides:330 Restoration to register(1) A company is restored to the New Zealand register when a notice signed by the Registrar stating that the company is restored to the New Zealand register is registered under this Act.(2) A company that is restored to the New Zealand register shall be deemed to have continued in existence as if it had not been removed from the register.[50] In our view Downs J correctly rejected the Commissioner's argument that the returns were nullities when finding that the relevant tax returns were retrospectivelyvalidated by s 330.51 However, we disagree with his subsequent finding that, while s 330 appeared capable of retrospectively validating a return to the time of filing, it did not necessarily entail that result.52 He relied on the grounds that: (a) until restoration there is no "taxpayer" in terms of the TAA and the Income Tax Act 2007 with whom the Commissioner can deal;53 (b) ss 328(6) and 329(4) of the Companies Act provide for the extension or suspension of limitation periods when necessary to"adjust the rights and obligations of the company and those involved with it as to place them as nearly as possible in the same position as if it had not been removed";54 and (c) the policy balance struck by s 108(1) of the TAA between"finality of taxpayers' affairs and effective maintenance of the tax base" would be imperilled if s 330 were to effect "[u]nbridled retrospective validation of tax returns"filed while a company was struck off.55[51] The legislative history to s 330 does not assist the Commissioner; it was simply carried through from older statutory regimes.56 Two draft versions of the Companies Act prepared by the Law Commission did not include any power for the Court or the Registrar to restore a company to the register.57 The select committee later recommended the inclusion of restorative powers.58 Parliament inserted s 330(2) as a correlative deeming provision, reviving the language of s 305(2) of the Companies Act 1955 which had been repealed by s 12(1) of the Companies Amendment Act 1980 along with other provisions relating to the Court's supervisoryjurisdiction over winding up.[52] What is clear, however, is that the Companies Act 1993 is driven by the desire for commercial certainty. The long title states, among other things, that the51 HC judgment, above n 1, at [86]–[102] applying this Court's decisions in Natural Selection Clothing Ltd v Commissioner of Trade Marks [1996] 2 NZLR 148 (CA) and Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA).52 HC judgment, above n 1, [103].53 At [104] applying Spencer v Commissioner of Inland Revenue (2004) 21 NZTC 18,818 (HC) at [63].54 HC judgment, above n 1, at [105]–[106] quoting Clark v Libra Developments Ltd, above n 51, at [203].55 HC judgment, above n 1, at [108].56 The phraseology can be traced back at least to s 7(5) of the Companies Act 1880 (UK).57 Law Commission Company Law: Reform and Restatement (NZLC R9, 1989); and Law Commission Company Law Reform: Transition and Revision (NZLC R16, 1990).58 "Report of the Justice and Law Reform Committee on the Companies Bill" [1991–1993] XXIII AJHR I.8A at 17.Act defines "the relationships between companies and their creditors" andprovides "straightforward and fair procedures for realising and distributing the assets of insolvent companies". Section 330(2) is straightforward and fair: neither the restored company nor third parties can challenge the validity of actions taken during the period of its removal.59 That is the starting point for Great North and the Commissioner. Any judicial alteration to their positions under ss 328(6) or 329(4)"as may be necessary or desirable" deviates from that starting point, albeit guided by the underlying concern to place the restored company and any other persons as nearly as possible in the same position as if the company had not been removed from the register. Put another way, the Court's power to give directions or make suchorders is superimposed on a default statutory rule.[53] We agree therefore with Mr Lennard that ss 328(6) and 329(4), on which the Judge relied, favour Great North's argument rather than the Commissioner's. These provisions exist to protect creditors who understood they were dealing with a registered company during the period of removal, and who would otherwise have no right to pursue the restored company on those transactions, by enabling them to apply to the Court to wind back the clock.60 By this means creditors' rights arepreserved, placing them in the position they would have enjoyed but for thecompany's removal. It would usurp that function to dilute the plain meaning of s 330 by applying it according to its context. The purpose of ss 328(6) and 329(4) is to ensure flexibility where otherwise the application of s 330 might work an injustice. If the position was otherwise, those two provisions would be rendered superfluous and the reach of s 330 uncertain.[54] We agree also with Mr Lennard that the purpose and effect of s 330 is strictlyrestorative. It deems unequivocally that the company has "continued in existence as if it had not been removed from the register". In this context its legal effect is that the returns were filed on the day they were filed as if the company was then in existence. The striking off is treated as if it had never occurred. Mr Lennard is correct that there was nothing to backdate. Everything done by the company during59 Clark v Libra Developments Ltd, above n 51, at [203].60 Securities Management Ltd v Registrar of Companies [2017] NZHC 46 at [16]. CompareRe Donald Kenyon Ltd [1956] 1 WLR 1397 (Ch) at 1401 applying Tymans Ltd v Craven [1952] 1 All ER 613 (CA).the restored period is legally operative on and from its date and according to its terms. Moreover, contrary to Downs J, we are satisfied the effect of s 330 is that there was a taxpayer in law at the relevant time. There was a company through the restored period and it was liable to tax like any other company, providing of course it was carrying on business. And the argument of impairment to the policy balance inherent in s 108 is unavailable if the meaning of s 330 is plain.[55] In our judgment the Commissioner has relied on a strained meaning to secure a result which would otherwise be available to her according to the statutory process. Great North was restored to the register on an application made by Mr Russell based upon his purported appointment as its receiver on 26 May 2005. His five-year delay was never explained. Nevertheless, if his appointment was valid, he had standing under s 328(2)(c) to apply for restoration. The Registrar was bound by s 328(1) to restore once he was satisfied that the company was in receivership when struck off.[56] However, Great North was originally struck off under s 318(1)(e) pursuant to a statutory notice given by its liquidators on 15 April 2005 which expired on and took effect from 28 May 2005. The Commissioner would have arguably been entitled to apply for judicial review of the Registrar's decision to reinstateGreat North from 10 October 2010 on the ground that Mr Russell's purportedappointment as receiver on 26 May 2005 was invalid. A question would arise also about whether Mr Russell complied with his obligation to give public notice of his application to restore in accordance with s 328(3)(b).[57] Before Downs J Ms Deligiannis submitted that the Commissioner has neither the time nor the resources to restore companies to the register in order to comply with her statutory responsibilities.61 However, we would have assumed the Commissioner was monitoring closely the corporate machinations of Great North and its associates. In any event, as this case shows, s 108(2) of the TAA is an effective safeguard for the Commissioner and the maintenance of the tax base. A company which was not carrying on business — neither when it was removed nor throughout the period it was struck off — had no lawful reason for filing tax returns other than to obtain a benefit to which it was not entitled. A return could not61 HC judgment, above n 1, at [100].correctly represent that the company had earned profits when it generated no income; a return representing losses while the company generated no income could only be categorised as misleading and, almost axiomatically, knowingly so. Mr Russell's blatant manoeuvring of the Registrar's power of restoration for an abusive purposeexemplifies the protective scope of s 108(2).[58] It follows that the four-year time bar provided by s 108(1)(a) would apply to six of the Commissioner's reassessments if we had not found that Great North'sreturns were fraudulent or knowingly misleading.Result[59] The appeal is dismissed.[60] The appellant is ordered pay the respondent's costs for a standard appeal on a band A basis and usual disbursements.Solicitors:NSA Tax Ltd, Auckland for AppellantCrown Law Office, Wellington for Respondent