GREAT NORTH MOTOR COMPANY LTD (IN RECEIVERSHIP) v COMMISSIONER OF INLAND REVENUE [2016] NZHC 2708

GREAT NORTH MOTOR COMPANY LTD (IN RECEIVERSHIP) v COMMISSIONER OF INLAND REVENUE [2016] NZHC 2708 [11 November 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-001710[2016] NZHC 2708UNDER the Tax Administration Act 1994IN THE MATTER of the Income Tax Act 1994, the IncomeTax Act 2004, and the Income Tax Act2007BETWEEN GREAT NORTH MOTOR COMPANYLIMITED (IN RECEIVERSHIP)PlaintiffAND COMMISSIONER OF INLANDREVENUEDefendantHearing: 25 - 27 October 2016Counsel: M Lennard for PlaintiffM Deligiannis and K Naik-Leong for DefendantJudgment: 11 November 2016JUDGMENT OF DOWNS JThis judgment was delivered by me on Friday, 11 November 2016 at 3 pmpursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors/Counsel:M Lennard, Wellington.Crown Law, Wellington.M Deligiannis, Wellington.Table of ContentsPara NoThe case [1]The facts [4]Something about the evidence [25]The law in relation to tax avoidance [29]Did the arrangement constitute tax avoidance?The first step [36]The second step: the manner in which the arrangement was carried out [39]The roles of the relevant parties and their relationship to the taxpayer [44]The nature and extent of the financial consequences of the arrangementfor the taxpayer [47]Artificiality and contrivance [49]Mr Russell's position on the issue [52]The ultimate question [55]The time-bar: wilfully misleading returns?The provision [58]Fraudulent or wilfully misleading: the test [60]The Commissioner's stance [63]Great North's position [66]Analysis [68]Shortfall penalty [79]The time-bar: s 330(2) of the Companies Act [86]Conclusion [112]The case[1] The Commissioner disallowed tax deductions and losses of Great NorthMotor Company Ltd, or Great North, to the value of almost $22 million1 in relationto tax returns from 1996 to 2011.2 And, the Commissioner penalised Great North foradopting an abusive tax position on the basis tax avoidance was the dominantpurpose or effect of the company's arrangement. Great North contends theCommissioner erred. It took its case to the Taxation Review Authority. On 14 July1 The precise figure is $21,719,813.79, of which $19,934,737.67 represents deductions and $1,785,076.12 losses brought forward from 1995.2 The case encompasses three statutes given the returns' time-span: the Income Tax Act 1994,which governs the 1996–2005 returns; the Income Tax Act 2004, which governs the 2006–2008returns; and the Income Tax Act 2007, which governs the 2009–2011 returns. Because thematerial sections are the same throughout, this judgment refers only to the 2007 Act.2015, Toogood J transferred it to this Court following an application by theCommissioner.3[2] In addition to the primary issue of whether Great North has engaged in taxavoidance, a procedural point arises of some significance. Most of the tax returnswere re-assessed by the Commissioner more than four years after they were filed,and hence after a time-bar for re-assessment. But for much of that period, GreatNorth did not exist in the sense it had been removed from the companies register.So, the Commissioner contends those returns were nullities and the time-bar does notapply, as it could not run during that time. However, s 330 of the Companies Act1993 provides if a company is restored to the register—as Great North was twice—the company is deemed to have continued in existence as if never removed from theregister, thereby implying the time-bar is engaged. Applicable case law is notobviously decisive.[3] The Commissioner advances an alternative argument that because GreatNorth's tax returns were wilfully misleading, a statutory exception to the time-bar isengaged. Great North contends the returns were anything but.The facts[4] The facts are important, albeit few were contested. They are best understoodafter the relevant personnel have been introduced. First, the key corporates.[5] Great North was incorporated on 21 October 1959 and until 7 February 1992,called Zupps Motors Ltd. It operated a used car yard. Great North's ownership maybe fairly described as circular. 99.99 percent of Great North's shares are held byGlen Eden Holdings Ltd, or Glen Eden. Glen Eden is wholly owned by CommercialManagement Ltd, or Commercial Management. Commercial Management is whollyowned by Commercial Administration Ltd, or Commercial Administration. AndCommercial Administration is wholly owned by Glen Eden. The remaining0.01 percent of Great North is owned by Downsview Nominees Ltd, or Downsview.And Downsview is wholly owned by Commercial Administration:3 Commissioner of Inland Revenue v Great North Motor Company Ltd (in rec) [2015] NZHC 1645, (2015) 27 NZTC 22-016.CommercialAdministration DownsviewCommercialManagementGreat NorthGlen Eden[6] Next, the individuals. Mr John George Russell was the sole director ofGlen Eden, Commercial Management and Commercial Administration. And,accountant and secretary to all three companies. Mr Russell could not recall inevidence whether he was a director of Great North before 2010 but nothing turns onthis; he was its accountant since approximately 1989.[7] Mr Russell is now a semi-retired accountant who remains active in taxaffairs. Mr Russell has had a difficult, litigious and ultimately ruinous 30-yearrelationship with the Commissioner—ruinous because Mr Russell was bankruptedlast year in consequence of a dispute about his own tax affairs. Unsurprisingly, thesetopics arose in evidence from time to time. So too did Mr Russell's views about ourtax laws, and the Commissioner's interpretation and enforcement of them.[8] On more than one occasion in testimony, Mr Russell referred to his contestwith the Commissioner and by implication, tax more generally, as a "game". I saymore about this later. But before going further, I make explicit I have approachedthis case without reference to the long shadow cast by Mr Russell's previousdealings with the Commissioner, and more particularly, Mr Russell's reportedpropensity for tax avoidance. Great North is entitled to have its case determined byreference to only the evidence in this case, of which propensity evidence formed noadmissible part.4[9] The other individual of significance, albeit he was not a witness, isMr Anthony Radisich. Mr Radisich and his companies are longstanding clients ofMr Russell. And, Mr Radisich is a former shareholder of the plaintiff. He held98.4 percent of the shares until September 1998. It was common ground all shares inGreat North are held on trust for Mr Radisich's benefit.[10] And now, the central arrangement and long aftermath. On 20 August 1993,Great North issued a debenture to Glen Eden in return for Glen Eden advancing$380,277 to Great North. This sum was repayable "on demand"; meaningGreat North was liable to repay the advance in full at any time. Interest was payableat any rate specified by Glen Eden, but only when Glen Eden actually demandedpayment of interest. In the absence of Glen Eden stipulating an interest rate, thedefault rate was 28 percent per annum. Under the debenture, Great North wasentitled to make repayments of principal at any time.[11] Materially, Great North was then insolvent. It ceased trading on10 December 1993, a little under four months after Glen Eden's apparent injection offunding. I say apparent because while the funds were advanced, it is likely theywere used to repay another creditor owed exactly the same amount by Great North,Ron West Ltd (Ron West). Mr Radisich owned 99.99 percent of Ron West; theremaining 0.01 percent was owned by Downsview. So, it is likely Glen Eden wasmerely substituted for Ron West as a creditor.4 Paragraph 101 of Ms Chapman's brief of evidence for the Commissioner referred to propensityevidence of tax avoidance, but at a very high level of generality. The evidence lacked probative value for this reason and I declined to admit it; s 8 of the Evidence Act 2006. The paragraph also relied exclusively on hearsay evidence, in circumstances in which effective challenge might have been problematical. During closing, Mr Lennard submitted the tax arrangement in question was different from that engineered by Mr Russell in another case of established tax avoidance:Miller v Commissioner of Inland Revenue [2001] UKPC 17, [2001] 3 NZLR 316 (PC). At my invitation, Mr Lennard took instructions overnight and sought leave to withdraw the submission; by then, the hearing had concluded. I permitted him leave to do so, essentially to protect GreatNorth's entitlement to a fair trial. While carefully framed, Mr Lennard's submission reduced tothe proposition that upon this occasion, Mr Russell had not engaged in tax avoidance. That struck me as a potentially sharp dual-edged sword.[12] On 14 July 1994, Mr Russell wrote to the Commissioner saying Great Northhad no assets or income, and thus no funds to pay PAYE tax deductions from31 March 1991. Mr Russell engaged in not dissimilar correspondence on 21 March1995. Great North was placed in liquidation in the intervening period, on1 September 1994.[13] On 20 April and 28 June 1995, Mr Russell filed income tax returns for GreatNorth for that year. The returns asserted Great North had made combined losses of$1,785,076.12.[14] Great North was removed from the companies register on 8 May 1996. Buton 1 July 1997 it was restored to the register on application by Glen Eden andMr Russell. It is likely the pair took this step to prosecute a dispute with theCommissioner in relation to the latter's treatment of Great North's tax returns for1991 to 1995, in which the Commissioner had disallowed claimed deductions andlosses on the basis the returns were unsupported by adequate documentation.[15] On 23 December 1997 Mr Russell wrote two letters to the Commissioneroutlining objections to the Commissioner's 1991 to 1995 determinations. And thenin April 1998, Great North instituted judicial review proceedings against theCommissioner in relation to these determinations. But Great North did notrecommence business. Indeed, it has not sold a car since 1993 or perhaps earlier, orfor that matter, done anything else since then to generate income.[16] Great North was again placed in liquidation on 24 June 1998. Glen Edenabandoned its judicial review proceedings in September that year. Thereafter littlehappened until May 2005.[17] On 25 May 2005 Kensington Developments Ltd, or KDL, acquired 14debentures from Glen Eden, including that issued by Great North to Glen Eden in1993. KDL was incorporated in 1979 but has been in receivership since 30 June1994. Mr Russell has been its receiver from July 1994 and sole director from 1 April2008. Notwithstanding Mr Russell's evidence to the contrary, it is unlikely KDLpaid anything to acquire the debentures: it had no obvious means to do so,Mr Russell's reports as receiver imply nothing was paid, and there is no independentevidence to suggest anything was. By this time, Great North owed Glen Eden—and hence KDL by virtue of the transfer—$5.9 million under the debenture.[18] On 26 May 2005, Mr Russell appointed himself receiver of Great North. Andon 29 May 2005, it was struck off the companies register.[19] In July 2005 Mr Russell filed tax returns on behalf of Great North eventhough the company had been removed from the register two months earlier. Thereturns were for the tax years ending 31 March 1996 to 31 March 2005 inclusive.They claimed as expenditure and associated losses the interest payable onGreat North's debenture since inception, which by 2005 had reached the sum of$7,206,855.66. On 13 July 2006 Mr Russell filed Great North's return for that year.By then, Great North's paper losses had swollen to $8,875,561.97.[20] The Commissioner issued determinations the same year allowing the claimedexpenditure and losses. However, these determinations were made automaticallyrather than in consequence of any deliberative process; indeed, they were computergenerated.5 But they were determinations nonetheless. From 11 October 2005, theCommissioner issued re-assessments countermanding that earlier stance. However,it is almost certain Mr Russell had anticipated as much:(a) On 27 August 2010 he and Glen Eden applied to reinstate Great Northto 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 theCommissioner, Mr Russell informed the Commissioner re-assessment5 Mr Russell gave evidence the Commissioner had a team of staff devoted to tax matters in whichhe was involved, and the assessments were made deliberatively. While it is likely a team existedat some point during Mr Russell's dealings with the Commissioner over many years, I acceptMs Chapman's evidence the returns were computed-generated with minimal human input (inpart because they look computer-generated, and in part because Ms Chapman was authoritativeon this point). But nothing turns on this because the determinations bound the Commissioner.was time-barred because of the operation of s 330 of the Companies Act 1993.[21] Over 2011 and 2012 Mr Russell filed Great North's tax returns for the 2010–2011 years, the last of which are in issue. On 7 April 2011, the Commissionercommenced an investigation into Great North's returns and sought information fromMr Russell. He and the Commissioner traded correspondence into 2012.[22] On 4 September 2012, KDL transferred its interest or some thereof, in theGreat North debenture to Timberton Investment Ltd, or Timberton. Timberton iswholly owned by Mr Radisich. Mr Russell signed the deed of assignment asreceivers for both Great North and KDL. Whereas it is likely KDL had paid nothingfor the Great North debenture (and others), Timberton paid KDL a total of $600,000.Great North agreed to pay contributory interest as necessary at a rate of 10 percentper annum. Timberton acquired Great North's tax losses at a rate of 15 cents perdollar of loss.[23] Events of 2013 need not detain us. In 2014, the Commissioner concludedGreat North had engaged in tax avoidance and s 108(2) of the Tax AdministrationAct 1994 permitted re-assessment of allegedly misleading tax returns.[24] To date, several companies in connection with Mr Radisich have applied$6,571,066.72 of Great North's putative losses to diminish their tax liability.Something about the evidence[25] There were only two witnesses: Mr Russell for Great North and Ms KerynChapman, a specialist investigator for the Commissioner. Ms Chapman's evidencelargely involved a reconstruction of the sequence set out above, based ondocumentation from a variety of sources, including Mr Russell. Little of hertestimony was challenged.[26] Mr Russell gave evidence for more than a day, all but 30–40 minutes being incross-examination. In brief evidence-in-chief, Mr Russell disputed little of thesequence above. But he denied anything in connection with Great North was taxavoidance, and strongly denied filing wilfully misleading returns. Material factual contests I deal with later in context of the respective issues, but first, somepreliminary observations about Mr Russell's evidence.[27] Mr Russell was an avuncular and charismatic witness whose acuity remainsundimmed by age.6 But his evidence was unpersuasive. Mr Russell's testimony wasmarred by at least three difficulties:(a) A tendency for the elliptical. Rather than answering the posedquestion, Mr Russell would often answer one of his choice, engage inargument or offer an explanation of peripheral relevance. On severaloccasions, I had to direct him to address the question.(b) An apparently unwavering belief only he understood tax law,company law and accountancy. So, another person's position on anissue—most frequently, but not always the Commissioner's—Mr Russell would dismiss as "plainly wrong" or "simply wrong".Mr Russell was similarly dismissive when confronted about the basison which he appointed himself Great North's receiver.(c) His view, as alluded to above, that his dealings with theCommissioner and the tax system were a "game". On severaloccasions when re-reading his combative correspondence with theCommissioner, Mr Russell laughed or smiled, demeanour capturedonly once by the record. The word "game" was his. It arose in thisway:Q So you are laughing, Mr Russell, why is that?A Well at the time, what was happening was the, in the, thearguments the Commissioner was having with me at thetime, he was denying his own records and so I said well ifyou, if you're going to do that I want you to sign up herethat, that your – in fact I asked you, you just recently inone such case I think but anyway I asked the, the6 Mr Russell is in his eighties, a fact admitted by consent during the hearing; see s 9 of the Evidence Act 2006.Commissioner to sign a document which he was (inaudible12:32:04) to sign and then I would supply the information.Well, it really was a bit of a game, you know, at that stageand I thought well, he's gonna deny his own records thenwe'll see how he goes on this one, so we asked that he signup to actually perform what he said he would do if I gavehim the information. I don't know that I even had anyinformation to give him or certainly not much, I would'vethought.THE COURT:Q Who did you regard the game as being between,Mr Russell?A The Inland Revenue Department, Your Honour.CROSS-EXAMINATION CONTINUES: MS DELIGIANNISQ And yourself?A What's that?Q And yourself?A Oh yes. It takes two to tango.Q Well the last 30 years have been a bit of a game for youhaven't they?A Well. Not really. I mean it, it has been, become rather serious of recent times.[28] Mr Lennard submitted Mr Russell's apparently unwavering self-belief tendedto confirm the veracity of his testimony. I disagree.The law in relation to tax avoidance[29] In Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue,7 andPenny v Commissioner of Inland Revenue,8 the New Zealand Supreme Courtauthoritatively settled the correct approach to the hitherto somewhat amorphous7 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009]2 NZLR 289.8 Penny v Commissioner of Inland Revenue [2011] NZSC 95, [2012] 1 NZLR 433.concept of tax avoidance. In light of this, there was no dispute between the partiesabout the applicable principles. No exegesis is required.[30] The cases call for a two-step inquiry.9 The first step examines whether thetaxpayer has met the requirements of the specific taxation provision relied upon topermit the tax advantage; in this case, the ability of a company to deduct interestincurred by it as a business expense.10 If not, obviously the taxpayer is not entitledto the tax advantage for which he, she or it contends.[31] If that step is met, the second step considers the use of the specific taxationprovision in light of the arrangement as a whole to determine if an otherwiseseemingly legitimate tax advantage engages tax avoidance:11 If, when viewed in that light, it is apparent that the taxpayer has used thespecific provisions, and thereby altered the incidence of income tax, in a waywhich cannot have been within the contemplation and purpose of Parliamentwhen it enacted the provision, the arrangement will be a tax avoidancearrangement.[32] The general avoidance and specific taxation provisions are meant to work in unison. Each provides context for the interpretation and application of the other.12Consequently, the policy underlying the general anti-avoidance provision mustalways be kept in mind.13[33] In determining whether an arrangement gives rise to tax avoidance,14 the"general anti-avoidance provision does not confine the court as to the matters whichmay be taken into account" and the Courts may address "a number of relevantfactors, the significance of which will depend on the particular facts".15 Theseinclude:169 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [107].10 Income Tax Act 2007, s DB 7.11 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [107]: seeIncome Tax Act 2007, s BG 1.12 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [103].13 Penny v Commissioner of Inland Revenue, above n 8, at [47].14 The term arrangement is defined extremely broadly; see Income Tax Act 2007, s YA 1.15 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [108].16 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [108].(a) The manner in which the arrangement is carried out;(b) The roles of the relevant parties and the relationship each has with the taxpayer;17(c) The nature and extent of the financial consequences of thearrangement for the taxpayer; and(d) Contrivance and artificiality, which are often hallmarks of taxavoidance.[34] In Ben Nevis the majority observed:18The ultimate question is whether the impugned arrangement, viewed in acommercially and economically realistic way, makes use of the specificprovision in a manner that is consistent with Parliament's purpose. If theuse of the specific provision is beyond parliamentary contemplation, its usein that way will result in the arrangement being a tax avoidance arrangement.[35] As will be apparent, the inquiry is objective: tax avoidance does not requirethe taxpayer to have intended that outcome or effect. However, when a taxpayer isalleged to have filed a wilfully misleading return on the basis he, she or it knew theclaimed deductions constituted tax avoidance, obviously knowledge or recklessnesson their part must be established in relation to the return. Or more accurately giventhe burden of proof in these cases, not disproved by the taxpayer on the civilstandard.19 More about this later.Did the arrangement constitute tax avoidance?The first step[36] There is no dispute Great North meets the first of the two steps identified by the Supreme Court: it was entitled to treat interest incurred in relation to thedebenture as a deductible expense.20 However, I accept the Commissioner's17 The Supreme Court saw the latter consideration as important because some tax avoidancearrangements are akin to joint ventures, so that ordinary commercial tensions are not engaged.18 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [109].19 Tax Administration Act 1994, s 149A(1).20 Income Tax Act 2007, s DB 7(1).submission that in providing for the deductibility of interest as a business-related expense, Parliament intended deductibility to align with the genuine cost of suchexpenditure.[37] In Accent Management Ltd v Commissioner of Inland Revenue, the Court ofAppeal observed in relation to specific deductibility provisions:21 When construing such specific rules and looking for their scheme andpurpose, it is necessary to keep general anti-avoidance provisions steadily in mind. On this basis, it will usually be safe to infer that specific tax rules as to deductibility are premised on the assumption that they should only be invoked in relation to the incurring of real economic consequences of the type contemplated by the legislature when the rules were enacted. Further, it also seems reasonable to assume that deductibility rules are premised on a legislative assumption that they will only be invoked by those who engage in business activities for the purpose of making a profit. Further, schemes which come within the letter of specific tax deductibility rules by means of contrivance or pretence are candidates for avoidance.[38] Similar observations appear in Ben Nevis in relation to the 50-year gapbetween when the expenditure was incurred and its payment.22 This does not changethe outcome of the first step. But it does inform my assessment of the second, towhich I now turn.The second step: the manner in which the arrangement was carried out[39] Great North was insolvent when it issued the debenture to Glen Eden. Glen Eden knew that because it was the majority shareholder; Mr Russell was theaccountant for both companies; and as Mr Russell accepted in evidence, his officeprepared Great North's accounts. They are informative. As at 31 March 1993,Great North had:(a) Incurred losses of $366,898.(b) Negative shareholder funds of $511,558.(c) Assets of $110,845 and liabilities of $622,403.21 Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23NZTC 21,323 at [126].22 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [127]–[130].[40] By 10 December 1993 Great North had ceased trading. And by then, had incurred further losses of $137,014. As will be recalled, the debenture was issued on 20 August 1993. Great North had no means by which to service interest payments at 28 percent, let alone repay principal. And as observed, Glen Eden and Mr Russell knew that.[41] As to the debenture, its terms tend to reinforce the artificiality of thesituation:(a) Principal was repayable on demand. So, in theory, Great North could be required to repay the entire sum at little notice.(b) Interest was payable at any rate advised by Glen Eden, meaning atwhim. It is unlikely a rational borrower would accept a term of thisnature.(c) The default interest rate was 28 percent per annum. Mr Russell saidfinance companies were then charging higher interest rates. However,Ms Chapman's evidence was that Reserve Bank mortgage interestrates were just below 10 percent at that time. Of course, those interestrates presuppose security when the debenture was unsecured.However, it is unlikely marketplace interest rates for unsecuredtransactions were nearly three times higher.(d) Interest was payable only on demand by Glen Eden. Lendersnormally require regular periodic repayments of interest, as interestconstitutes their income, which must be offset against their cost oflending money. But on this arrangement, Glen Eden received nothingunless it actually asked for interest—each and every time.Ms Chapman said she had never encountered a provision like this.(e) The debenture placed Great North in the control of a Glen Eden- appointed receiver as soon as the advanced sum became payable,irrespective of whether Great North had defaulted.23[42] Notwithstanding Mr Russell's evidence to the contrary, it is unlikely KDLpaid anything to acquire Glen Eden's interests in the debenture. KDL could not. Itwas in receivership and owed $1,186,000 to its own debenture holder. And,Mr Russell's reports as receiver for KDL in this period do not refer to any paymentby it to Glen Eden. Moreover, there is no independent evidence KDL paid anythingto acquire Glen Eden's interest.[43] To recapitulate:(a) Great North issued the debenture to Glen Eden when it knew Great North was insolvent.(b) The debenture's terms tend to reinforce the artificiality of thearrangement. Those terms were incongruent with the actions ofrational business actors seeking to minimise cost and risk.(c) The debenture was later transferred without consideration by Glen Eden to KDL.24The roles of the relevant parties and their relationship to the taxpayer[44] Great North and Glen Eden are part of the same group of companies. Since30 October 1992, Glen Eden has held 99.99 percent of the shares in Great North.23 Providing the appointment was made in writing by the lender.24 The Commissioner asked Mr Russell in correspondence why Glen Eden considered itadvantageous to assign the debenture to KDL. Mr Russell responded in writing, saying: "it hadthe effect of reducing the cost of receivership". The more likely position is that the assignmentwas effected so Mr Russell complied with s 5(1) of the Receiverships Act 1993. That sectionprovides a person is unable to be appointed to act as receiver if the person is or has been withinthe period of two years immediately preceding the commencement of the receivership, a directorof the grantor or a director of the mortgagee of the property in receivership. Under cross-examination, Mr Russell appeared to accept that was real reason for the transfer; see notes ofevidence, p 85. Mr Russell had previously been convicted for breaching the Receiverships Act:this evidence was introduced, but not as veracity evidence (s 37 of the Evidence Act 2006), andso no requirement of substantial helpfulness arose.And as observed, Glen Eden's ownership is circular: it is wholly owned byCommercial Management; Commercial Management is wholly owned byCommercial Administration; and Commercial Administration is wholly owned byGlen Eden. The remaining 0.01 percent of Great North's shares are held byDownsview, in turn owned by Commercial Administration. Mr Russell was thedirector of Glen Eden, Commercial Management, Commercial Administration andDownsview.[45] Mr Russell was KDL's director and receiver. When Glen Eden assigned thedebenture to KDL on 25 May 2005, Mr Russell signed the deed of assignment asdirector for Glen Eden and receiver for KDL. The next day, Mr Russell appointedhimself receiver of Great North too.[46] Mr Russell was asked in cross-examination if this gave rise to a conflict. Hereplied: "Well no. It wasn't, because the interests of the parties were the same, wasto get, the most out of the company for the benefit of the debenture holder".25 Butthe parties' interests could only align if they were closely inter-related. It is unlikelyarms-length borrowers and lenders would agree to the same receiver acting for both.The point can be illustrated this way. Great North's original indebtedness was$380,277. Yet by the end of 2012 it was $20,738,717, a figure duly recorded byMr Russell in his report as receiver for KDL.The nature and extent of the financial consequences of the arrangement for thetaxpayer[47] There is no nexus between the claimed deductions and genuine economicconsequences for Great North. Great North has never paid a cent of interest. Norwill it. And, it is most unlikely it was intended to. There is no evidence Glen Edenever demanded interest. Or KDL. Or for that matter, Timberton.[48] There is no evidence Great North ever asked for a lower interest rate than28 percent. Most rational actors wish to borrow money as cheaply as possible.25 Notes of evidence, p 58.Artificiality and contrivance[49] Both indicia of tax avoidance are present.[50] While it is correct funds were advanced by Glen Eden to Great North,Great North was known to be insolvent. As observed, there was never anylikelihood it would be able to service the debt, let alone repay principal. The parties'inter-relationships underscore the artificiality of the arrangement.[51] Great North has been in receivership since 2005. And yet it has not sold a carsince 1993, perhaps earlier. There is no reason—apart from this dispute—forGreat North to remain on the companies register. Its continued existence is acontrivance.Mr Russell's position on the issue[52] Mr Russell's brief of evidence contained only one paragraph on the questionof whether the arrangement was tax avoidance. Mr Russell said it was not becauseinterest is deductible as a business expense, funds were advanced and there was nocircularity or contrivance. In closing, Mr Lennard crisply made the same points.[53] It is true interest is deductible as a business expense. But the Supreme Court has made clear that satisfaction of the first step is not determinative of the second.As discussed, circularity was present, at least in terms of the parties' inter- relationships. So too contrivance. The use of actual funds in the first instance is offset by the fact Great North was known to be insolvent. One creditor was replaced for another, on my view, to alter the incidence of tax.[54] In closing, Mr Lennard did not place any reliance on the fact Timberton paidKDL $600,000 for the partial assignment of KDL's interests in the Great Northdebenture. That was understandable. Under cross-examination, Mr Russell acceptedTimberton, a profitable company owned by Mr Radisich, paid the sum in order touse Great North's tax losses. Or in Mr Russell's own words: "So you can – you canget money out of a debenture more ways than just having the customer pay youback."26The ultimate question[55] This leaves what the Supreme Court described as "the ultimate question":whether the impugned arrangement, viewed in a commercially and economicallyrealistic way, makes use of the specific provision in a manner that is consistent withParliament's purpose.[56] Great North has never suffered any genuine cost in connection with itsborrowing from Glen Eden. Nor in all probability was it intended to. There is noalignment between the claimed deduction and expenditure on part of the taxpayer.Indeed, there was never any true expenditure on Great North's part. Parliamentwould not have contemplated the deduction of interest as a business-related expensein this way.[57] I am satisfied the Commissioner was correct to conclude the arrangement wastax avoidance, and a rather obvious example of its kind.27The time-bar: wilfully misleading returns?The provision[58] Section 108(1) of the Tax Administration Act 1994 prohibits theCommissioner from increasing an income tax assessment after four years havepassed from the end of the tax year in which the taxpayer provides the return. Butthe time-bar is subject to the exceptions identified in s 108(2):(2) If the Commissioner is of the opinion that a tax return provided by a taxpayer—(a) is fraudulent or wilfully misleading; or26 Notes of evidence, p 89.27 Tax avoidance merely incidental to an arrangement is not prohibited: see Income Tax Act 2007,s YA 1. At the hearing, Mr Lennard responsibly abandoned Great North's original claim that anytax avoidance through the scheme was merely incidental.(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.[59] These provisions represent a compromise between the accurate determinationof taxation liability and finality,28 and acknowledge the Commissioner possessesonly finite resources.29 Taxpayers who fail to comply with their obligations, ormislead the Commissioner, may not hide behind the four-year time-bar.30Fraudulent or wilfully misleading: the test[60] Although the phrase is disjunctive, the term fraudulent appears to have coloured the balance of the statutory language. So, in Babington v Commissioner ofInland Revenue (No 2) in 1958, Turner J concluded the phrase "wilfully misleading"required knowledge on the part of the taxpayer the return was materially inaccurate,and an associated intention to mislead: negligence or inattention was insufficient.31However, the Judge accepted subjective recklessness would suffice, meaning whenthe taxpayer "adverted to the probability or possibility that the returns were false andwas at the time reckless in the sense of not caring whether they were correct ornot".32[61] This approach has stood the test of time. In Case K48 Judge Keane, as he then was, considered:33The objector must seek to evade liability, knowing that what he is doing is wrong, and intending it nevertheless. Or he must be recklessly careless as towhether or not he is wrong.28 Sir Ian McKay and others Tax Compliance: Report to the Treasurer and Minister of Revenue by a Committee of Experts (Inland Revenue Department, December 1998, Wellington) at [10.2].29 Vinelight Nominees Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,519 (HC) at[24].30 Vinelight Nominees Ltd v Commissioner of Inland Revenue, above n 29, at [24].31 Babington v Commissioner of Inland Revenue (No 2) [1958] NZLR 152 (SC). This caseconsidered s 16 of the Land and Income Tax Act 1923. Unlike s 108(2), s 16 at the relevant timepermitted the assessments to be re-opened only if the returns were fraudulent or wilfullymisleading (an objective fact), rather than if the Commissioner held the opinion the returns werefraudulent or wilfully misleading (a subjective fact). The change was not effected until 1955;see Babington v Commissioner of Inland Revenue (No 2) at 154.32 Babington v Commissioner of Inland Revenue (No 2), above n 31, at 157.33 Case K48 (1988) 10 NZTC 397 (TRA) at 402. This case considered s 24 of the Land and Income Tax Act 1954.[62] In the recent case of Edwards v Commissioner of Inland Revenue,34Williams J considered the phrase "fraudulent or wilfully misleading" to elide withthe standard for the imposition of a shortfall penalty under s 141E of the TaxAdministration Act,35 which applies to an evasive tax position. But that approachappears to have reflected the particular facts, including procedural wrangling on thepart of both parties. Moreover, whether a return is "fraudulent or wilfullymisleading" is a question antecedent to that of penalty, because there can be no re-assessment—and hence no question of penalty—unless the return is first vitiated inthis way. Consequently, I approach the issue by reference to the older authoritiesabove.The Commissioner's stance[63] Here, the Commissioner concluded the 1996–2006 returns were wilfully misleading. The essence of her reasoning was:(a) Mr Russell filed the returns knowing the Commissioner had alreadydisallowed similar deductions in relation to Great North's 1991–1995tax returns (also filed by Mr Russell). And, because Glen Eden'sjudicial proceedings against the Commissioner were later abandoned,Mr Russell knew the Commissioner's position vis-à-vis the earlier returns was unimpeachable.(b) It was "arguable" Mr Russell knew the arrangement was taxavoidance given its various features.[64] So, when representing the returns reflected the true tax position of Great North, Mr Russell had wilfully misled the Commissioner.[65] Ms Deligiannis defended this reasoning, while inviting me to make my own determination if I concluded the Commissioner had erred.34 Edwards v Commissioner of Inland Revenue [2016] NZHC 1795, (2016) 27 NZTC 22-064.35 Edwards v Commissioner of Inland Revenue, above n 34, at [88] and [117].Great North's position[66] Mr Lennard approached this issue in two ways. First, by reference to Mr Russell's characteristics, and second, to alleged flaws in the Commissioner'sreasoning. As to Mr Russell, Mr Lennard noted this was the only occasion in 30years' litigation in which Mr Russell had been accused of dishonesty. And hereminded me Mr Russell had never been convicted of misleading a Court or an offence involving dishonesty. Mr Lennard accepted while Mr Russell had strongviews about tax, those same views tended to support Mr Russell's belief the returnswere not misleading.[67] Mr Lennard submitted the Commissioner's reasoning was flawed in that the1991–1995 returns were disallowed for reasons wholly unconnected with alleged taxavoidance. And, he noted the timidity of the Commissioner's conclusion it was "arguable" Mr Russell knew the arrangement was tax avoidance, when cogent evidence is required before a Court or Tribunal may make a finding of fraud, dishonesty or some other species of morally reprehensible behaviour.36Analysis[68] I agree the first limb of the Commissioner's case is largely a non sequitur.The earlier returns were disallowed for a reason unconnected with tax avoidance: theCommissioner had concluded there was insufficient source documentation to supportthe claimed deductions. Their rejection on this ground says little if anything aboutwhether Mr Russell knew the later returns were misleading. It follows theCommissioner's basis for her rejection of the earlier returns has only a tenuousrational connection to the issue of Mr Russell's belief in relation to the later returns.So too the Commissioner's submission Mr Russell was not authorised to fileGreat North's 1995 tax return, as the company was then in liquidation and under thecontrol of the Official Assignee. That may well be correct, but again, says littleabout whether Mr Russell knew the later returns were misleading.[69] There is some divergence in the case law as to whether appellate deferenceattaches to the Commissioner's "opinion a return was fraudulent or wilfully36 Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1.misleading",37 a subject explored by Williams J in Edwards v Commissioner ofInland Revenue.38 However, it is axiomatic the Commissioner may not re-assess areturn merely because she considers it "arguable" the return is fraudulent or wilfullymisleading. That would be to re-write the statute; the Commissioner must be of theopinion the return was fraudulent or wilfully misleading. In fairness toMs Deligiannis, she did not suggest otherwise. Having found the Commissioner'sfirst limb was in error and the second inadequate, I approach this question afresh:were the returns wilfully misleading?[70] Having heard and re-examined the evidence, five things stand out.[71] First, Mr Russell was an experienced accountant with particular expertise in relation to tax arrangements—and someone who understood the concept of tax avoidance.39[72] Second, as Great North's accountant and receiver; as Glen Eden's,Commercial Administration's and Commercial Management's director, accountantand company secretary; and as director and receiver of KDL; Mr Russell knew all ofthe features of the arrangement discussed earlier that made it tax avoidance. So, forexample, Mr Russell knew:(a) Great North was insolvent when it issued the debenture to Glen Eden, and hence that it could not pay interest, let alone principal.(b) Important features of the debenture lacked commercial reality.(c) Of the inter-relationships between the companies, and of the corresponding absence of arms-length commerciality.37 Maxwell v Commissioner of Inland Revenue [1962] NZLR 683 (CA); Commissioner of InlandRevenue v Legarth [1969] NZLR 137 (CA) and Wire Supplies Ltd v Commissioner of InlandRevenue [2007] NZCA 244, [2007] 3 NZLR 458 (CA).38 Edwards v Commissioner of Inland Revenue, above n 34.39 The important term here is understood. This is not to introduce propensity evidence orpropensity reasoning about Mr Russell and tax avoidance.(d) Of the absence of nexus between the claimed deductions and anyeconomic cost borne by Great North.(e) And that Great North's continued existence was itself a contrivance.[73] Third, Mr Russell completed and filed the returns, representing they reflected the true tax position of Great North. They did not.[74] Fourth, Mr Russell's actions provide support for the proposition he knew ofthe returns' misleading nature:(a) As will be recalled, Mr Russell filed the returns for the 1996–2006 tax years in 2005 and 2006, and while Great North was struck off the companies register. Mr Russell then waited until August 2010 to apply for re-registration of the company, and when the Commissioner questioned the validity of the returns in early 2011, Mr Russellpromptly responded saying s 330 of the Companies Act in conjunctionwith the time-bar constituted an impediment to re-assessment.40Mr Russell denied manipulating the time-bar. However, he offered nocredible explanation for this sequence.41 In my view, this was adeliberate and cynical attempt by Mr Russell to frustrate theCommissioner's ability to re-assess Great North's true tax position.(b) When filing the returns, Mr Russell did nothing to alert theCommissioner to the circumstances in connection with the claimeddeductions. True, he was not obliged to. However, Mr Russell'stestimony is illuminating as to his state of mind. Undercross-examination on a related topic, he said, "If you don't restrict theobjection procedure to what it is actually objected to it might end up40 Mr Russell's correspondence does not cite s 330 but the reference is unmistakable: "the Statutesays that it is deemed to have continued in existence. For all legal purposes then the position isthat the company has never been struck off".41 Notes of evidence, p 73.giving the Commissioner ideas and we wouldn't want that would we?"42[75] Fifth, while Mr Russell denied filing misleading returns, on at least oneoccasion he came close to acknowledging the true purpose of the arrangement wastax avoidance. Ms Deligiannis put to Mr Russell he wrote to the Commissioner in(July) 1994 to explain Great North could not fund its PAYE obligations as it wasinsolvent:43Q You were quite happy to write to the department and ask it to write off the debts, the PAYE debts and say it's got no – company's got no assets,ceased trading, please write them off as irrecoverable?A Yeah well they were to them.Q Pardon?A The debts were irrecoverable to them.Q But not to you?A No.[76] Mr Lennard submitted Mr Russell stood to gain nothing personally from filing misleading returns. But Timberton paid KDL $600,000 for Great North's taxlosses, and Mr Russell was KDL's director and receiver. While these monies werepaid several years after the returns were filed, the evidence suggests Mr Russell hasan eye for the long game: Great North continues to exist for that reason. And in anyevent, the evidence is clear Mr Russell knew all of the characteristics of thearrangement that made it tax avoidance.[77] Consequently, I am satisfied Mr Russell knew the returns he completed and filed were misleading on the basis, either, that he had actual knowledge the arrangement constituted tax avoidance, or that it was highly likely tax avoidance (subjective recklessness).[78] In reaching this conclusion, I have considered but rejected as probativeMr Russell's previous good character. So too the argument which reduces to the42 Notes of evidence, p 91.43 Notes of evidence, p 14 (emphasis added).proposition Mr Russell's strong tax views blinded him to the obvious. Apart frombeing a somewhat unattractive submission, the evidence is against it—particularlygiven Mr Russell's expertise in this area.Shortfall penalty[79] A shortfall penalty is imposed when there is a tax shortfall. Unsurprisingly, the shortfall is the difference between the position adopted by the taxpayer and thecorrect position.44 But the Commissioner may also impose substantial penalties.Here, the Commissioner concluded Great North had adopted an abusive tax positioncontrary to s 141D of the Tax Administration Act 1994. Subsection (3) of thatsection creates a penalty of 100 percent of the tax shortfall.[80] In order for a tax position to be abusive, the position must have been unacceptable at the time at which the taxpayer adopted it; and the taxpayer must have entered an arrangement which, objectively, had the dominant purpose or effectof avoiding tax. An unacceptable tax position is one which, viewed objectively, fallsshort of being "about as likely as not to be correct". In Ben Nevis, the SupremeCourt considered a taxpayer did not need to demonstrate their position had at least a50 percent chance of success, but instead point to "substantial" arguments in supportof their tax position.45[81] Ms Deligiannis submitted the Commissioner was correct to conclude GreatNorth had adopted an abusive tax position given the features of the tax avoidancearrangement referred to earlier in this judgment.[82] Mr Lennard submitted the Commissioner was wrong to conclude the taxposition was unacceptable or abusive because "the loan was a real loan with realconsequences incurring real interest". And, he noted it was and is still legitimate fora company to engage in debt-parking.46[83] This issue is essentially self-executing given my earlier findings:44 Tax Administration Act 1994, s 3(1).45 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 7, at [154].46 Citing Fugle v Commissioner of Inland Revenue [2016] NZHC 1997, (2016) 27 NZTC 22,069.(a) Great North's arrangement constituted tax avoidance.(b) Mr Russell knew that or was subjectively reckless as to that; on the basis he appreciated the arrangement was highly likely tax avoidance.(c) This is a rather obvious example of such an arrangement.[84] It necessarily follows Great North's tax position was unacceptable and abusive. For completeness, it is correct as Mr Lennard submitted, the loan was real. But it is not correct the loan incurred real interest. In all probability, it was nevermeant to. Moreover, the debt-parking case identified by Mr Lennard was concernedwith the somewhat Byzantine accruals regime under the Tax Administration Act1994. More importantly, that case did not involve alleged tax avoidance either.Plainly, it is distinguishable.[85] I am satisfied the Commissioner did not err in imposing shortfall penalties foran abusive tax position.The time-bar: s 330(2) of the Companies Act[86] This issue could be avoided given my findings. However, Toogood J saw it as a material reason for transferring the case here.47 And, an appeal is not unlikely. A higher court may be assisted by first-instance analysis, even if it later disagrees.[87] The logical starting point is s 15 of the Companies Act 1993. It provides:15 Separate legal personalityA company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the New Zealand register.[88] Consequently, a company removed from the companies register does notexist in law. But s 330 of the same Act provides:47 Commissioner of Inland Revenue v Great North Motor Company Ltd (in rec), above n 3, at [44]-[45].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.[89] The effect of the deeming provision was considered by the Court of Appeal inNatural Selection Clothing Ltd v Commissioner of Trade Marks.48 In that case anAustralian company applied to the Commissioner of Trade Marks for an extension oftime to oppose an application by a competitor to register a trade mark. At that time,the Australian company did not exist in that it had been removed from the register.The Commissioner granted the application. Natural Selection contended theAustralian equivalent to our s 330(2) did not permit the Commissioner to extendtime even though the Australian company had subsequently been restored to theregister.[90] This submission was not accepted. The Court of Appeal approved the viewthat the re-animation of the company had retroactive effect, and said:49Although we were invited by Mr Hodder to prefer the reasoning of Jenkins LJ, it was not argued that we should go so far as to adopt the conclusion that the relevant provision means only that upon the reinstatement of the company it resumes its corporate existence as if it had never been lost but does not revive acts done in the name of the company while it was deregistered. Mr Hodder accepted that the deemed existence of the company must be taken to extend back to the time of the application for extension of time to oppose the trade mark application and that application, from the time of the re-registration of the company, must be deemed to havebeen validly made by a "person". We have no doubt that it should extendto all matters the only defect in which stems from the non-existence of the company. To take the more restrictive view would be to create difficulties in such areas as company contracts and dealings by the company and its officers in the course of business. There is also an illogicality in treating the application as valid but the decisions as invalid when the only basis for their invalidity is the invalidity of the application.48 Natural Selection Clothing Ltd v Commissioner of Trade Marks [1996] 2 NZLR 148 (CA).49 Natural Selection Clothing Ltd v Commissioner of Trade Marks, above n 48, at 154.[91] The next case of relevance is Spencer v Commissioner of Inland Revenue.50There, the Commissioner issued goods and services tax assessments in the name of acompany while it was removed from the register. The period for disputing theassessments expired while the company was off the register. The Commissionerlater applied to restore the company. The Commissioner then sought to rely upons 330(2). In particular, the Commissioner argued the assessments were valid andcould not be disputed as the response period had expired. The High Court disagreed.[92] Paterson J distinguished Natural Selection. The Judge noted that caseinvolved action by or on behalf of the company when it was off the register, where asin his case, action was being taken against the company when it was off the register.The Judge noted there was English authority for the proposition a limitation perioddoes not run while the company is struck-off.51 The Judge concluded:52the deeming provision cannot validate an assessment which was issued against a non-existent company and in respect of which that nonexistent company was expected to take action before it was restored to the register. This is particularly so in a case where the assessment is now being used to claim a considerable sum from third parties. The defect stems not only from the nonexistence of the company, but also from the fact that it was not possible because of [its] non-existence for the appropriate [Notice ofProposed Assessment] to be issued within the statutory period. They have no effect. In my view, the assessment was a nullity.[93] To summarise, Paterson J considered it material the action was against thecompany, the company could not defend itself because it did not exist, and the rightsof third parties were affected. Of these reasons, the second appears to have beenespecially important.[94] The final case of significance is another decision of the Court of Appeal:Clark v Libra Developments Ltd.53 That case involved a dispute between a propertydeveloper and a building company about the latter's entitlement to profit-share. Atone stage, that company was removed from the register but restored several yearslater, and the impact of that was material to the dispute. Williams and Gendall JJ50 Spencer v Commissioner of Inland Revenue (2004) 21 NZTC 18,818 (HC).51 Citing in Re Donald Kenyon Ltd [1956] 1 WLR 1397, [1956] 3 All ER 596 (Ch D).52 Spencer v Commissioner of Inland Revenue, above n 50, at [63].53 Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA).reviewed the applicable common law and scheme of the Companies Act 1993. TheirHonours said:54 [the Act's] provisions support the view that it is appropriate to give s 330(2) its literal meaning. Removal from the register places the companyand those operating it or dealing with it in legally a state of "suspended inanition". As it is no longer registered and does not comply with therequirements of the Act, it is no longer a "company" as defined by s 2.[95] And:55But Parliament recognised that because the grounds for removal in s 318 arewide and removal may follow the company's failure – sometimes minor failure – to comply with its statutory obligations, the Court or the Registrar should have the power of restoration to the register in appropriate cases and, should that occur, it is also appropriate that the company and all those dealing with it during the period of removal should not be disadvantaged by its and their actions during the period it was off the register. Accordingly neither it nor they can challenge the validity of actions taken, including during the period of its removal, and the Court is given power on restoration so 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. As mentioned in Morris and Tymans, the Court or the Registrar has power by restoration to the register to ensure the company and all those who have dealt with it during the removal period are placed as faras is possible in an "as-you-were" position. Holding that s 330(2) is to beaccorded a literal interpretation also accords with the decision of this Court in Natural Selection even though the point did not directly arise in that case, and also accords with the High Court decisions earlier reviewed. Spencershould, in our view, be seen as a decision on its own facts or confined to the operation of the Tax Acts. Further, as Mr Churchman submitted, had Mr Clark wished to dissolve Southern Developments during the period Libra was off the register, he could have issued dissolution proceedings in this Court under the Partnership Act 1908, s 38, and sought directions as to service.[96] This is the first case since Clark v Libra in which the deeming provision'seffect has arisen in a taxation context. And whereas Spencer was a case in which theCommissioner was relying upon the deeming provision, here, the Commissionercontends that provision does not affect the outcome.[97] Mr Lennard submitted Spencer was distinguishable for just this reason. Henoted the breadth of s 330(2)'s language and the observation in Clark v Libra that the54 Clark v Libra Developments Ltd, above n 53, at [202].55 At [203].section meant what it said. He also submitted the Commissioner would not be prejudiced in future cases by an adverse ruling on this issue because:(a) Section 89C of the Tax Administration Act 1994 exempted theCommissioner from engaging the disputes resolution process whentimely tax returns had not been filed.(b) The Commissioner could seek to restore a company to the register viaeither ss 328 or 329 of the Companies Act (in order to pre-emptpossible application of the time-bar if the company was later restoredwithout reference to the Commissioner).[98] Consequently, Mr Lennard submitted the returns filed by Mr Russell in 2005 and 2006 engaged the earlier discussed time-bar because s 330(2) meant Great North had never been removed from the register, and so time ran from 2005.[99] Ms Deligiannis disagreed. She observed that in Clark v Libra, Williams and Gendall JJ treated Spencer as either "a decision on its own facts or confined to theoperation of the Tax Acts".56 Ms Deligiannis exhorted the latter characterisation.Ms Deligiannis also contended the Court in Clark v Libra saw s 330(2) as ensuring"the company and all those dealing with it during the period of removal should notbe disadvantaged by its and their actions during the period if it was off theregister",57 which, if applied to the facts, led to the inverse result of the returns beingnullities because:(a) The company did not exist while it was off the register.(b) There was no entity with which the Commissioner could deal in those circumstances.[100] Ms Deligiannis submitted the Commissioner had neither time nor resourcesto restore companies to the register in order to comply with her statutoryresponsibilities.56 Clark v Libra Developments Ltd, above n 53, at [203].57 At [203].[101] As will be apparent, the arguments advanced by the Commissioner andGreat North offer a stark choice: either the returns were retrospectively validated andalways in existence—or nullities. I consider the issue is more nuanced.[102] Once removed from the register, a company does not exist in law. This isclear from s 15 of the Companies Act, which was cited earlier. It is also clear froms 2 of that Act, which defines a company as one registered under Part 2 of the Act orre-registered under the Companies Act in accordance with the CompaniesRe-registration Act 1993. However, case law demonstrates that, by dint of s 330, theactions of a deregistered company are not treated as nullities upon that company'srestoration to the register.58 Consequently, s 330 appears to be capable ofretrospectively validating the filing of a tax return. So far so good.[103] The question then becomes whether retrospective validation necessarily entails backdating a return to the time of its filing. I conclude not, for three reasons.[104] First, until restoration, there is no taxpayer with whom the Commissioner can deal. So, a tax return filed during a corporate interregnum cannot affect the Commissioner unless the company is subsequently restored to the register. Until that point, no taxpayer exists. This was the view of Paterson J in Spencer: there was nocompany in existence at the relevant time. Consequently, the deregistered companycould not defend itself (by complying with the applicable statutory time-period).[105] Second, ss 328(6) and 329(4) of the Companies Act provide for the extensionor suspension of limitation periods when necessary to put a company and thirdparties in the position they would have occupied if deregistration had notintervened.59 Both provisions seek to ensure neither the restored company nor anyother person is unfairly affected by the company's removal from the register.60 Thesame concern was evident in Clark v Libra. The Court of Appeal said although58 See, for example, Crisford v Bank of New Zealand [2012] NZHC 3290, (2012) 14 NZCPR 1 andCommissioner of Inland Revenue v Registrar of Companies (2007) 23 NZTC 21,215, (2007) 4 NZCCLR 1.59 Re Donald Kenyon Ltd [1956] 1 WLR 1397, [1956] 3 All ER 596 (ChD) and Tymans Ltd v Craven [1952] 1 All ER 613.60 Re West HC Napier M37/02, 15 May 2003.removal from the register put the company in a state of "suspended inanition",Parliament had recognised via s 330 it was:61 appropriate that the company and all those dealing with it during the period of removal should not be disadvantaged by its and their actions during the period it was off the register. Accordingly neither it [the company] nor they can challenge the validity of actions taken, including during the period of its removal, and the Court is given power on restoration so 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.[106] The Court referred specifically to the powers of the Court and Registrar on acompany's restoration to ameliorate any adverse effects of s 330. The literalmeaning of s 330 was promoted, but only alongside the exercise of those powers.[107] Third, s 108 must also be considered. It provides:(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.[108] Section 108's primary purpose is to limit the circumstances in which the Commissioner can exercise the power to reassess tax.62 But in providing for a four- year time limit, a balance has obviously been struck between the finality oftaxpayers' affairs and effective maintenance of the tax base. Unbridled retrospective validation of a tax return pursuant to s 330 of the Companies Act could imperil s 108. And as observed, the Companies Act jurisprudence is alive to concerns of this nature, Clark v Libra included. So too ss 328(6) and 329(4) of that Act.[109] So, had the issue been live, I would have concluded the s 108 time-bar commenced only when Great North was restored to the register on 8 October 2010.Only then did the Commissioner have a "taxpayer" with whom to deal. As to that, a61 Clark v Libra Developments Ltd, above n 53, at [203].62 Catherine Bibbey Tax Acts and Commentary (online looseleaf edition, Thomson Reuters) at [TAAC-108].taxpayer is defined by the Tax Administration Act as a person who is liable to perform or to comply with a tax obligation, or who may take a tax position.63 On restoration to the register, a company becomes liable to file tax returns for the years in which it was off the register; on the basis it is deemed to have been "alive" duringthat period. Before then, no such obligation or liability exists, and more centrally, no company or taxpayer existed.[110] Mr Lennard may be correct in submitting the Commissioner has otherremedies if s 330(2) is applied literally. Specifically, if the Commissioner applied toreinstate the company to the register, she could take advantage of ss 328(6) or329(4). However, doubt attaches to whether this is practicable. It is somewhatunrealistic to expect the Commissioner to have a company restored to the register inorder to safeguard against the possibility the company might otherwise avail itself ofthe time-bar. And when, for whatever reason, the Commissioner does not take suchpre-emptive action, it would be contrary to the intent of both ss 330 and 108 to allowthis possibility to constitute an answer to the status of the relevant tax returns.[111] For completeness, while Clark v Libra's treatment of Spencer was admittedlyguarded, Williams and Gendall JJ appear to have accepted Spencer represented abroader exception to s 330(2) in relation "to the operation of the Tax Acts". It mayalso be their Honours, while doubtful of some of the reasoning, saw that the outcomereached by Paterson J as the only correct one in the circumstances. But whatever thetrue position, a party should not be governed by the retrospective application of atime-bar through quirk of a corporate interregnum.Conclusion[112] The Commissioner was correct to disallow the tax deductions and losses claimed by Great North. The arrangement was one of tax avoidance. A shortfallpenalty for an abusive tax position was warranted. Great North's case is dismissed.[113] The Commissioner is entitled to costs on a 2B basis unless Great North is legally aided.63 Tax Administration Act 1994, s 3.[114] I thank counsel for the quality of their written and oral submissions...Downs J