STAITHES DRIVE DEVELOPMENT LTD v COMMISSIONER OF INLAND REVENUE [2015] NZHC 2593

STAITHES DRIVE DEVELOPMENT LTD v COMMISSIONER OF INLAND REVENUE [2015] NZHC 2593 [21 October 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-000669[2015] NZHC 2593UNDER Section 26A of the Taxation ReviewAuthorities Act 1994IN THE MATTER OF the Goods and Services Tax Act 1985BETWEEN STAITHES DRIVE DEVELOPMENTLIMITEDAppellantAND COMMISSIONER OFINLAND REVENUERespondentHearing: 26 and 27 August 2015Counsel: S R G Judd for the AppellantM Deligiannis and K I S Naik-Leong for the RespondentJudgment: 21 October 2015JUDGMENT OF EDWARDS JThis judgment was delivered by Justice Edwardson 21 October 2015 at 4.45 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Counsel: S R G Judd, AucklandM Deligiannis, WellingtonSolicitors: Ladbrook Law Limited, AucklandLegal Planit, WellingtonIntroduction[1] By decision dated 2 March 2015, the Taxation Review Authority (TRA)confirmed the Commissioner's assessments disallowing input tax credits totalling $505,550.60 claimed by the appellant (Staithes) on a land purchase.1[2] The TRA did so on the basis that both Staithes and the vendor of the land were associated parties pursuant to s 2A(1)(a)(i) of the Goods and Services Tax Act 1985 (GSTA) because the same group of persons held the voting interests in each party to the transaction. In the alternative, the TRA confirmed the Commissioner'sassessment that there was a tax avoidance arrangement under s 76 of the GSTA and also confirmed the imposition of shortfall penalties. The TRA dismissed theCommissioner's argument that the parties were associated under s 2A(1)(a)(iii) of the GSTA which provides for association by "control by any other means whatsoever".[3] Staithes appeals the findings of association pursuant to s 2A(1)(a)(i) (referred to as (i) throughout this judgment), tax avoidance and the imposition of shortfall penalties. Staithes says the TRA should not have allowed the voting interests argument to be raised during closing submissions. On the substantive issue, it says that the parties were not associated within the meaning of (i) because the shares were held in each case on bare trust and their bare trusteeship did not give them voting interests within the meaning of (i). It challenges the evidence relied on by the TRA to find a tax avoidance arrangement. It similarly challenges the imposition of shortfall penalties on the basis that if they were not sought on the primary argument of association, then they cannot be imposed on the alternative tax avoidance argument.[4] The Commissioner cross-appeals against the TRA's finding that the partieswere not associated within the meaning of s 2A(1)(a)(iii) (referred to as (iii)). She says that (iii) encompasses factual control in addition to legal control, and that there1 Staithes Drive Development Ltd v Commissioner of Inland Revenue [2015] NZTRA 1, (2015) 27 NZTC 3-000.was evidence of factual control supporting a finding of association within the meaning of that subsection.Background[5] The key facts are not in dispute and were the subject of a detailed agreed statement of facts. Although the facts are recited in full in the TRA's judgment, it is necessary to restate them again so as to put the submissions of both parties on appeal in context.[6] The GST input credits disallowed by the Commissioner and the TRA were claimed on the purchase price paid by Staithes for a block of land it purchased from Whitby Land Holdings Ltd (Whitby) pursuant to a sale and purchase agreement dated 10 February 2006 (ASP).Whitby[7] Whitby was incorporated on 10 January 1996. It was not registered for GST.[8] Mr Mason was a director of Whitby up until 9 February 2006 when he resigned and Mr Russell was appointed director.[9] The shareholders in Whitby entered into a sale and purchase agreement for their shares with Bell Road Developments Ltd (Bell Road) on 6 September 2004. The sale and purchase agreement for the shares provided that the purchaser would be Bell Road or any other entity owned by Mr Mason by mutual agreement. The purchase price was $3 million plus GST (if any).[10] By deed of nomination dated 18 July 2005, the purchase of the Whitby shares was made by Thoms Brothers Ltd (Thoms Bros).[11] Thoms Bros was incorporated on 29 September 1988. Mr Russell was a director of Thoms Bros up until 14 September 2004, when Mr Russell resigned and Mr Mason was appointed director.[12] All of Thoms Bros' shares were owned by Commercial Management Ltd (Management). Management's shares were owned by Commercial Administration Ltd (Administration). Administration's shares were owned by Glen Eden Holdings Ltd (Glen Eden) and Glen Eden's shares were owned by Management. Administration also owned 100 per cent of the shares in Downsview Nominees Ltd (Nominees). Mr Russell was the sole director of all those entities.[13] Management held its shares in Thoms Bros on trust for Zinc and Brass Foundries Ltd (Foundries). Mr Russell was a director of Foundries. Management owned 29,999 shares in Foundries which it held on trust for Mr and Mrs Manning who resided in the United States and had done so since 1982. The remaining share in Foundries was owned by Nominees which held that share on trust for Mrs Manning. As noted above, Nominees was owned by Administration.[14] In summary, Whitby's ultimate shareholders were Management,Administration and Glen Eden. The ultimate beneficiaries pursuant to the trust arrangements in place were Mr and Mrs Manning.[15] Whitby's ownership structure and the various trust relationships are shown in the diagram set out below:100% owned by100% owned by1 Foundries shareThoms Bros shares held on trustforHolds 29,999 Foundries shares100% owned by100% owned byFoundries share on trust for100% owned by100% owned byFoundries shares held on trust forWhitbyMr and Mrs ManningThoms BrosDirector: Mr Russell until14.9.2004Mr Mason from 14.9.2004ManagementDirector: Mr RussellAdministrationDirector: Mr RussellNomineesDirector: Mr RussellFoundriesDirector: Mr RussellGlen EdenDirector: Mr RussellStaithes[16] Staithes was the purchaser of the property. It was incorporated on 30 September 2004 and on 1 January 2006 it was registered for goods and servicestax with a taxable activity of "developing and selling residential sites".[17] Mr Russell was a director of Staithes up until 9 February 2006 when he resigned and Mr Mason was appointed director.[18] Mr Russell was shown as the shareholder of all of Staithes' shares in the company office records up until 2008. Mr Russell's evidence before the TRA wasthat these records were incorrect and in fact the shares were held by Nominees pursuant to a share transfer form dated 30 September 2004. The TRA found that Nominees was the sole shareholder in Staithes at all relevant times.2 That finding is not challenged on appeal.[19] As set out above, Nominees was owned by Administration, which was owned by Glen Eden, which was owned by Management, which in turn was owned by Administration. In other words, Staithes' ultimate shareholders were the same as Whitby's ultimate shareholders.[20] The TRA accepted Mr Russell's evidence that Nominees' shares in Staitheswere held on trust for Emmanuel Construction Ltd (in rec and in liq). Mr Russell was the receiver for that company. Ninety-nine per cent of the shares in Emmanuel Construction Ltd (in rec and in liq) were owned by Emmanuel Ventures Ltd (in liq) with the other one per cent owned by Mr Johnson.[21] Emmanuel Ventures Ltd (in liq) was placed into liquidation in 1990 and struck off the register in 1996. Prior to being struck off, the company had 11 shareholders who held various parcels of shares.[22] A copy of the ownership structure and trust relationships in place for Staithes is set out below.2 At [90].Other parties[23] Mr Mason was the director of Whitby until 9 February 2006 when he resigned and Mr Russell was appointed director. Effectively, Mr Mason and Mr Russell swapped their directorships in Staithes and Whitby the day before the ASP was executed.[24] As noted in the diagrams, Mr Russell held directorships of Thoms Bros, Management, Administration, Glen Eden, Foundries, and Nominees. Mr Russell was also the receiver of Emmanuel Construction Ltd (in rec and in liq).[25] Mr Russell's personal address was recorded on the Company Office website at various points in time for Staithes, Nominees, Administration, Glen Eden, Management, Emmanuel Construction Ltd (in rec and in liq), Whitby, Thoms Bros, and Foundries.[26] On 8 February 2006, two days before the ASP was signed, Staithes entered into a management contract with Capital Project Management Ltd. Mr Mason was100% owned by99% owned by 1% owned by100% owned by100% owned by100% owned by100% owned byStaithes shares held on trustforStaithesEmmanuel ConstructionLimited (In rec & In liq)Receiver: Mr RussellNomineesDirector: Mr RussellAdministrationDirector: Mr RussellGlen EdenDirector: Mr RussellEmmanuelVenturesLimited(In liq)ManagementDirector: Mr Russell11shareholdersMr Johnsondirector of Capital Project Management Ltd, and he and his family were the ultimate beneficiaries of the shares owned in Capital Project Management Ltd.[27] Under the terms of that management contract, Staithes authorised Capital Project Management Ltd to manage, control and conduct the affairs of Staithes relating to the development of the property. The management fee for these services was 85 per cent of the profit from development of the property.Sale and purchase transaction[28] On 10 February 2006, Whitby and Staithes entered into the ASP. The purchase price was $4,557,000, including GST (if any).[29] Whitby had previously purchased the Property on 1 April 1997. No GST was charged on that supply.[30] The ASP provided for the purchase price to be paid by way of a deposit of $50,000, with the balance to be paid in 10 instalments. Payment of the deposit was due on execution of the ASP. Transfer of the title was to take place upon payment of the deposit.[31] There were subsequent undated variations to the ASP which varied the payment dates for the instalments. Pursuant to these variations, nine instalments of $500,000 each were to be made on the first of each month commencing 1 August 2007. A final payment of $7,000 fell due on 1 May 2008.[32] Payment of the deposit was not made on execution of the ASP. Nevertheless, Staithes became the registered proprietor of the property on 1 March 2006.[33] No actual cash payments were made by Staithes. Rather, payment was madevia Capital Project Management Ltd and by way of journal entry. The TRA'sdecision summarises the method of payment of the purchase price as follows:[42] On 11 July 2006 Project Management advanced $50,000 to the Disputant [Staithes] by way of cheque. On 12 July 2006 the Disputant issued a cheque for $50,000 to Project Management which was the depositfor the Property. On the same day Project Management paid the $50,000 received from the Disputant to the Vendor by journal entry. This involved a debit to the Disputant of $50,000 and a credit to the Vendor of the same amount in the accounts of Project Management.[43] Instalment payments of $500,000 each were eventually made on 1 August 2007, 31 August 2007, 13 September 2007, 26 September 2007, 23 October 2007, 31 October 2007, 20 November 2007, 30 November 2007 and 20 December 2007. These were effected as follows:(i) Project Management advanced a loan by way of cheque to the Disputant for $500,000;(ii) The Disputant paid Project Management $500,000;(iii) Project Management paid the Vendor by journal entry whichinvolved a credit to the Vendor's current liabilities of $500,000 and a debit to the Disputant's current liabilities of $500,000.On 1 May 2008 the final instalment of $7,000 was paid by the Disputant for the purchase of the Property.(footnote omitted)GST input claims[34] Staithes filed GST returns on 20 March 2007, 30 October 2007 and 29 February 2008 claiming GST input credits for the deposit and subsequent instalments of the purchase price. The Commissioner withheld the refunds payable and issued dispute notices.[35] The dispute was referred to the adjudication unit which confirmed theapproach taken by the Commissioner. Staithes' challenge in the TRA was alsounsuccessful and it is from that decision that it now appeals.[36] The total additional GST claimed by the Commissioner is $505,555.60. The total sum of shortfall penalties imposed was $250,000, although as will be seen, the Commissioner does not seek to impose these penalties in the event that her primary argument that Staithes and Whitby are associated is upheld.Approach on appeal[37] An appeal against a decision of the TRA under s 26A of the Taxation Review Authorities Act 1994 is a general appeal and the principles in Austin, Nichols & Co Inc v Stichting Lodestar apply.3[38] I adopt the summary of the principles to be taken from Austin, Nicholsprovided by Wylie J in Russell v Commissioner of Inland Revenue:4a) the appellant bears the onus of satisfying the appeal court that it should differ from the decision under appeal;b) it is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it;c) the appeal court has the responsibility of arriving at its own assessment on the merits of the case;d) no deference is required beyond the customary caution appropriate where the first instance fact finder had a particular advantage such as technical expertise or an opportunity to assess the credibility of witnesses;e) the appellate Judge is entitled to use the reasons of the first instance decision-maker to assist him or her in reaching his or her own conclusions, but the weight the Judge places on them is a matter for the Court.Statutory framework[39] Section 20(3) of the GSTA allows a GST registered person to claim input tax deductions.5[40] Input tax is defined in s 3A of the GSTA. Subsection (2) of that section provides that the amount of input tax is to be calculated in accordance with subs (3) in the case of the supply by way of sale to a registered person of second-hand goods situated in New Zealand if the other conditions set out in subs (2)(a), (b) and (c) are met.3 Russell v Commissioner of Inland Revenue (2010) 24 NZTC 24,463 (HC) at [69]; ID Tours New Zealand Ltd v Commissioner of Inland Revenue [2015] NZHC 483, (2015) 27 NZTC 22-001 at [48]; Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.4 Russell v Commissioner of Inland Revenue, above n 3 at [69].5 The relevant legislation is that which was in force at the time the payments were made by Staithes to Whitby. Some of the relevant provisions considered in this decision have since been amended.[41] There is no dispute that the sale of land to Staithes is the supply to a registered person of second hand goods situated in New Zealand and that the other conditions of subs (2) are met. Accordingly, the amount of input tax Staithes could claim is governed by s 3A(3).[42] Section 3A (3)(a) provides that the amount of input tax that can be claimed if the supplier and the recipient are "associated persons" is the lesser of:(i) the tax included in the original cost of the goods to the supplier; and(ii) the tax fraction of the purchase price; and(iii) the tax fraction of the open market value of the supply.[43] If Staithes and Whitby are held to be associated therefore, the amount of input tax to be deducted would be zero as there was no tax included in the original purchase price of the land sold to Whitby.[44] The meaning of "associated persons" is set out in s 2A(1) of the GSTA. The relevant sections in this appeal are contained in subs (1)(a), but as determination of the issues on appeal involve questions of statutory interpretation, it is necessary to set out the entire section:62A Meaning of associated persons(1) In this Act, associated persons or persons associated with each other are—(a) two companies if a group of persons—(i) has voting interests in each of those companies of 50% or more when added together; or(ii) has market value interests in each of those companies of 50% or more when added together and a market value circumstance exists in respect of either company; or(iii) has control of each of those companies by any other means whatsoever:6 I note during the period in question this definition was amended in ways that are not relevant to the determination of this appeal. The quoted section is the version of the section that was in force for most of the relevant period.(b) a company and a person other than a company if the personhas—(i) a voting interest in the company of 25% or more; or(ii) a market value interest in the company of 25% or more and a market value circumstance exists in respect of the company:(bb) a person, or a branch or division of the person that is treated as a separate person under section 56B, and another branch or division of the person that is treated as a separate personunder section 56B:(c) two persons who are—(i) connected by blood relationship:(ii) connected by marriage, civil union or de facto relationship:(iii) connected by adoption:(iv)(cb) a trustee of a trust and another person (person A), if—(i) person A is associated with another person (the relative) under paragraph (c); and(ii) the relative is associated with the trustee under paragraph (f):(d) a partnership and a partner in the partnership:(e) a partnership and a person if the person is associated with apartner in the partnership:(f) a trustee of a trust and a person who has benefited or is eligible to benefit under the trust, except if, in relation to a supply of goods and services,—(i) the trustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic, or cultural purposes; and(ii) the supply is made in carrying out these purposes:(g) a trustee of a trust and a settlor of the trust, except if thetrustee is a charitable or non-profit body with wholly or principally charitable, benevolent, philanthropic or cultural purposes:(h) a trustee of a trust and a trustee of another trust if the same person is a settlor of both trusts:(i) a person (person A) and another person (person B) if—(i) person B is associated with a third person (person C) under any one of paragraphs (a) to (h); and(ii) person C is associated with person A under any one of paragraphs (a) to (h).(2) For the purpose of subsection (1)(a), group of persons has the meaning set out in section OB 1 of the Income Tax Act 2004.(3) For the purpose of subsection (1)(a) and (1)(b)—(a) market value circumstance has the meaning set out in section OB 1 of the Income Tax Act 2004, as if the reference to thisAct in paragraph (e) of the definition were to "the Goods and Services Tax Act 1985":(b) market value interest has the meaning set out in paragraph (a) of the definition of market value interest in section OB 1 of the Income Tax Act 2004:(c) voting interest has the meaning set out in paragraph (a) of the definition of voting interest in section OB 1 of the Income Tax Act 2004.(4) For the purpose of section (1)(a) and (1)(b), if a person (person A) and another person (person B) are associated persons under any of subsection (1)(c) to (1)(i), person A is treated as holding anything held by person B.(5)(6) For the purpose of subsection (1)(c)—(a) persons are connected by blood relationship if they are within the second degree of relationship:(b) persons are connected by marriage, civil union or de facto relationship if one is in a marriage, civil union or de facto relationship with the other or with a person who is connected by blood relationship to the other:(c) persons are connected by adoption if one has been adopted as the child of the other or as a child of a person who is within the first degree of relationship to the other.(7) For the purpose of subsection (1)(g) and (1)(h), settlor has the meaning set out in section OB 1 of the Income Tax Act 2004.(8) Subsection (1)(i) does not apply if 2 persons (persons A and B) are both associated with a third person (person C) under subsection (1)(c).[45] The term "group of persons" has the meaning set out in s OB1 of theIncome Tax Act 2004, which defines the term as including one person.[46] The terms "voting interest", "market value interest", and "market value circumstances" as found in subs (1)(a)(i) and (ii) respectively have the meanings set out in s OB1 of the Income Tax Act. The term "voting interest" is defined under s OB1 as follows:(a) means, for a person and a company and a time, the percentage voting interest that the person is treated as holding in the company at the time under sections OD2 to OD6 (which relate to the measurement of control and ownership interests).[47] Section OD2 of the Income Tax Act sets out the purpose of ss OD3 to OD6 as follows:Except where otherwise expressly provided, sections OD3 to OD6 areintended to provide for the measurement of person's direct or indirectownership in a company by reference to the percentage of voting rights which that person may directly or indirectly exercise, except where certain specified circumstances exist in relation to a company, in which event aperson's direct or indirect ownership in that company is also measured by reference to the percentage of the total market value of interests in that company which that person holds.[48] Section OD3 sets out how voting interests are to be measured. It providesthat a person's voting interest equals the percentage of the total shareholder decision- making rights for the company carried by shares or options held by the person.Section OD3(3)(d) provides a "look through" rule by which voting interests held bycorporate shareholders are to be measured.[49] "Shareholder decision-making right" is defined in s OB1 as:Shareholder decision-making right means rights, carried by shares issued by a company or options over shares issued by a company, to vote or participate in any decision-making concerning –(a) the dividends or other distributions to be paid or made by the company whether on a liquidation of the company corporate shareholder or otherwise, excluding decision-making untaken by directors acting only in their capacity as directors; or(b) the constitution of the company; or(c) a variation in the capital of the company; or(d) the appointment of directors of the company.Issues[50] The issues raised by the appeal are as follows:(a) Did the TRA err in allowing the Commissioner to pursue the argument under (i) (voting interests)?(b) Are the parties associated pursuant to (i) (voting interests)?(c) Are the parties associated pursuant to (iii) (control by any other means whatsoever)?(d) Alternatively, is there an arrangement of tax avoidance pursuant to s 76 of the GSTA?(e) Did the TRA err in upholding the imposition of shortfall penalties on the tax avoidance arrangement?Did the TRA err in allowing the Commissioner to pursue the argument under (i)?[51] The Commissioner initially pursued her argument that the parties were associated under (iii) only. However, after the evidence had been heard, but before closing submissions, the judgment in Concepts 124 was released and the Commissioner sought to rely on (i) in addition to (iii).7[52] Like this case, Concepts 124 also concerned a sale and purchase of land where the vendor (Ormiston) was not registered for GST, but the purchaser (Concepts 124) was so registered. In that case, Mr Cummings was the ultimate shareholder in both Concepts 124 and Ormiston. He held 100 per cent of the shares7 Concepts 124 Ltd v Commissioner of Inland Revenue [2014] NZHC 2140, (2014) 26 NZTC 21- 100.in Working Concepts, which held 100 per cent of the shares in Concepts 124. He also held 100 per cent of the shares in Flatbush, which held 100 per cent of the shares in Ormiston. Seventy-five per cent of Flatbush's shares in Ormiston wereheld on trust for the Flatbush Holdings Trust, and a further 25 per cent were held on trust for Mr Cummings personally. Under the deed of trust, Flatbush could appoint secondary beneficiaries and Mr Cummings held the power of appointment and removal of trustees of the Flatbush Holdings Trust. Mr Cummings was also the director of all of the companies.[53] The Commissioner had taken the position that the voting interests test was not triggered in that case because 75 per cent of the voting interests in Ormiston were held on trust for the beneficiaries. Clifford J found that position to be flawed. His Honour found that in fact the parties were associated pursuant to (i) because Mr Cummings held the legal voting interests in each party to the transaction and the fact that the beneficial interest in those shares resided with a different party was to be ignored.[54] Following delivery of the judgment in Concepts 124, and at the TRA'sinvitation, the Commissioner sought to raise the argument that the parties wereassociated pursuant to the "voting interests" test in (i) in addition to the test in (iii) on the last day of closing submissions. The TRA allowed the Commissioner to do so pursuant to s 138G of the Tax Administration Act 1994 (TAA).[55] Section 138G of the TAA provides:(1) Unless subsection (2) applies, if the Commissioner issues a disclosure notice to a disputant, and the disputant challenges the disputable decision, the Commissioner and the disputant may raise in the challenge only the issues and the propositions of law that are disclosed in the Commissioner's and disputant's statements ofposition.(2) A hearing authority may, on application by a party to a challenge to a disputable decision, allow the applicant to raise in the challenge new propositions of law, and new issues, if satisfied that—(a) The applicant could not, at the time of delivery of theapplicant's statement of position, have, with due diligence,discerned those propositions of law or issues; and(b) Having regard to the provisions of section 89A and the conduct of the parties, the hearing authority considers that the raising of those propositions of law or issues is necessary to avoid manifest injustice to the Commissioner or the disputant.(3) For the purposes of subsection (1), a statement of position includes any additional information that the Commissioner and the disputant agree (under section 89M(13)) to add to the statement of position.[56] The TRA found that the proposition of law relied upon in the Commissioner'sstatement of position (SOP) was sufficiently broadly stated to encompass an argument under other subparagraphs of s 2A(1)(a), including (i).8 That was sufficient to bring it within the terms of s 138G(1).[57] However, the TRA went on to consider whether it would nevertheless allow the argument to be run under s 138G(2). In that respect, the TRA said:[87] I accept that the proposition of law now relied upon followed the High Court decision in Concepts 124 which was only delivered on 5 September 2014. Having regard to the provisions of s 89A and the conduct of the parties I consider that it would be manifestly unjust to the Commissioner in the circumstances of this case, not to permit this proposition of law to be raised.[58] Staithes challenges both findings.Section 138G(1)[59] Section 138G(1) provides that the Commissioner and the disputant may raise in challenge proceedings only the issues and the propositions of law that are disclosed in either the Commissioner's or the disputant's statements of position.[60] Section 89M(4) and (6) of the TAA provide that the various statements of position must, with sufficient detail to fairly inform the disputant or Commissioner as the case may be, outline the facts, evidence, issues and specify the propositions of law on which the Commissioner or the disputant intend to rely.8 Staithes Drive Development Ltd v Commissioner of Inland Revenue, above n 1 at [82].[61] The Court of Appeal confirmed the relevant test to apply in Vine Light Nominees Ltd v Commissioner of Inland Revenue as follows:9[31] Whether a given point was sufficiently disclosed is a question of judgement, to be exercised against the objectives of the disclosure provisions. Those provisions anticipate that before litigation begins the parties will identify, and so may discuss, all issues whose resolution might affect the positions that, absent agreement, they will bring to litigation. This objective requires that any given issue be identified in a statement of position with sufficient clarity to cause a reasonable party to recognise it as such.(footnote omitted)[62] In Vine, neither statement of position identified an issue relating to taxable activity at all and although the Commissioner had referred to a particular statutory provision in the listed provisions relied upon, that was not enough to cause a reasonable person to think the Commissioner had made an issue of the taxable activity in that case.[63] The opposite conclusion was reached in Commissioner of Inland Revenue v Delphi Fishing Company Ltd where the Commissioner was found to be entitled torely on a reference to the relevant statutory provision in the disputant's statement ofposition despite it not being identified in the Commissioner's statement of position.10[64] Staithes challenges the TRA's findings on the grounds that the Commissioner's statement of position (SOP) cannot be interpreted so as to refer to a "voting interest" argument under (i). It says the SOP specifically mentions (iii) and does not mention voting interests at all. Furthermore, Staithes says that theCommissioner's witnesses were asked expressly by Mr Russell, who wasrepresenting Staithes before the TRA, whether they relied on (i), and in each case, reliance on this line of argument was expressly disavowed.[65] Both the statement of issues and the propositions of law as stated in the Commissioner's SOP are framed in broad terms referring to whether the parties are "associated in terms of s 2A(1)(a) GSTA". The submissions section of the9 Vine Light Nominees Ltd v Commissioner of Inland Revenue [2013] NZCA 655, (2013) 26 NZTC 21-055.10 Commissioner of Inland Revenue v Delphi Fishing Company Ltd (2004) 21 NZTC 18,525 (HC).Commissioner's SOP is similarly expressed. However, reading through the rest ofthe SOP, it is clear that the Commissioner was pursing the "control by any other means" limb of the subsection as opposed to any of the other subparagraphs of s 2A(1)(a), or indeed any other subparagraph of s 2A(1). That is made explicit in the arguments section of the SOP where the Commissioner sets out her case as to whyMr Russell is said to have had "control" over both Staithes and Whitby for the purposes of association. The Commissioner concludes with her view that the"companies are associated for GST purposes pursuant to s 2A(1)(a)(iii) GSTA".[66] Staithes' SOP specifies the issues in dispute in very broad terms. The issues include "whether the taxpayer and Whitby are associated persons for GST purposes".The propositions of law relied upon by Staithes include the following statement:The associated persons test is based on the natural person shareholders at the end of the beneficial chain of shareholders where the ultimate shareholders are not associated and the parties are not associated persons.[67] I consider that, construed in isolation, the reasonable person would interpretthe Commissioner's SOP as stating the case under (iii) only and not preserving any line of argument that might be available under (i). That is consistent with thestatements of the Commissioner's witnesses at the hearing, and consistent with theposition being taken by the Commissioner up until the Concepts 124 decision was released. I therefore respectfully differ from the TRA on this point.[68] However, read together with the broad statements as to the issues in disputeas framed in Staithes' SOP, I consider that a reasonable person would understand thatthe issue in dispute was how to determine whether or not companies were"associated" where shares are held on trust. That is an issue relevant to the enquiry in (i) and in (iii).[69] I therefore consider that when both SOPs are read together, the issues are sufficiently disclosed to meet the requirements of s 138G(1). I therefore uphold theTRA's decision on this ground, albeit for different reasons.Section 138G(2)[70] The TRA went on to consider whether the argument would nevertheless have been allowed under s 138G(2) in the event that she was wrong in her conclusions on subsection (1). I do the same.[71] The TRA found that the voting interests argument was a proposition of law which could not, with due diligence, have been discovered at the time of the SOP. That is because the voting interests submission only became available as an argument when the Concepts 124 decision was delivered on 5 September 2014, after the evidence had been concluded, but before closing submissions.[72] Staithes says that there was nothing about the release of the Concepts 124decision that could justify the Commissioner's failure to include it in her SOP or inher submissions, or in the evidence before the TRA. Furthermore, Staithes submits that allowing the argument caused it manifest injustice because it did not have the opportunity to call evidence, direct cross-examination or develop its challenge to meet a claim that (i) applied.[73] I agree with the TRA that the Commissioner could not have with due diligence discovered the voting interests proposition at the time it served its SOP. Prior to the delivery of the Concepts 124 judgment, the Commissioner took the firm view that voting interests referred to the party that held the beneficial interest in the shares. That position was found to be wrong when the Concepts 124 judgment wasdelivered. I agree with the TRA that the "due diligence" limb of s 138G(2) is met.[74] I do not accept that Staithes suffered manifest injustice by allowing the argument to be made in the alternative during closing submissions. There was no additional evidence that could have been called by Staithes. The argument was a legal one which could be made on the evidence adduced at the hearing. There was little, if any, prejudice to Staithes in allowing the argument to be made at such a late stage. In contrast, the Commissioner faced a very real prejudice if not allowed to make this argument. That prejudice would be significant given the Commissioner only succeeded before the TRA on the voting interests line of argument.[75] I agree with the TRA that even if s 138G(1) does not apply, then s 138G(2) applies and the TRA was right to allow the Commissioner to make the voting interests argument.Are the parties associated pursuant to (i) (voting interests)?[76] The TRA found that the same group of persons, being Management, Administration, and Holdings, held all of the voting interests in both Staithes and Whitby, and accordingly they were associated persons under s 2A(1)(a)(i) of the GSTA.11 This determination was in accordance with the decision of Concepts 124.12[77] Staithes challenges the TRA's findings in this case on the grounds that thevoting interests were not held by the same groups of persons. It says that whilst Nominees and Management had common shareholding, the fact that the shares were held on bare trusts for different beneficiaries (Emmanuel Construction Ltd (in rec and in liq) and the Mannings respectively) meant that the voting interests resided with different parties.[78] As noted above, Clifford J's decision in Concepts 124 established that the voting interests test in (i) related to the legal ownership of the shares only. In reaching that decision Clifford J reviewed the legislative history of the relevant provisions in the GSTA and Income Tax Act. He found that in the context of the continuity provisions, it was not consistent with the underlying policy of those provisions to trace ownership through a corporate trustee to its shareholders. But that policy consideration did not apply where the voting interest provisions were used to determine control of a company. In those circumstances, there was no reason not to attribute control to the personal shareholders of a company that holds shares in another company on trust.13[79] His Honour drew the following conclusions on (i):[30] Section 2A(1)(a)(i) of the GST Act, referred to by the Commissioneras the "voting interests" test, makes no reference, directly or indirectly, to11 Staithes Drive Development Ltd v Commissioner of Inland Revenue, above n 1 at [94].12 Concepts 124 Ltd v Commissioner of Inland Revenue, above n 7.13 At [71] and [72].shares held on trust. The phrase "voting interest(s)", defined for the purposesof the GST Act in ss YA 1 and YC 2(1) of the Income Tax Act, means — in respect of a person and a company — the percentage of the total shareholder decision-making rights for the company carried by the shares or options heldby that person. So, the concept of "voting interests" is of decision making rights carried by shares or options held by that person.[31] The concept of "held" is not qualified, in that definition, byreference to whether the shares in question are owned legally only (as when held on trust) or legally and beneficially (as when held personally).[32] As a matter of basic company law a share is held by the person registered as its holder for the time being in the company's share register. Company law requires companies to ignore trust interests. That is the basis upon which questions of control of companies have also been determined in the tax context. It is sufficient to point to the decisions referred to by the Commissioner to establish that proposition.[33] I therefore found it difficult to understand why the Commissioner agreed with Concepts 124 that Ormiston were not associated persons pursuant to s 2A(1)(a)(i).[footnotes omitted][80] I do not consider anything turns on the fact that the Concepts 124 decision concerned the later provisions of the Income Tax Act 2007 rather than the provisions of the Income Tax Act 2004 with which this case is concerned. The substantive provisions relating to the control of companies remain essentially the same. I agree with Clifford J's analysis that the "voting interests" test refers to the legal ownershipof the shares and does not extend to the beneficial ownership of the shares.[81] Staithes seeks to distinguish Concepts 124 on its facts, drawing a distinction between the discretionary trust at issue in Concepts 124 and the bare trust at issue in this case. Staithes also submits that the policy of the GSTA would be frustrated if voting interests were determined by legal ownership rather than an enquiry into beneficial ownership. It suggests that if the reasoning in Concepts 124 extended to bare trustees, then a person could utilise two unrelated bare trustee companies to sell a property to him or herself.[82] I do not agree that Concepts 124 can be distinguished in this case. It is not necessary to look beyond the legal ownership of the shares for the purposes of determining who holds the voting interests in the company. The terms of the trust, whether bare, discretionary or contingent are irrelevant to the enquiry in (i).[83] I do not consider such an interpretation to frustrate the purpose of the associated persons provisions either. Depending on the precise terms of the structure in place, a person using two unrelated bare trustee companies to sell a property to him or herself may well be caught by the definition of association in ss 2A(1)(b)(i), 2A(1)(f), 2A(1)(i) and 2A(4). The fact of a trust relationship in relation to shares may also lead to a finding of association in (iii) depending on the circumstances of the case. Those subsections are sufficient to meet the underlying policy behind thedefinition of "associated persons" in my view, and it is unnecessary to interpret (i) as extending to the beneficial interest in cases of a bare trustee to further that legislative purpose.[84] I respectfully agree with the TRA's analysis of the voting interests argument.Staithes and Whitby were associated parties because the same group of companies held the requisite voting interests in each of them pursuant to (i).Are the parties associated pursuant to (iii) (control by any other means)?[85] The TRA found that Staithes and Whitby were not associated persons for the purposes of (iii).14 In doing so, the TRA held:15I am of the view that it is not necessary or appropriate in this case to consider issues of factual control. The case law is well established that control refers to legal control. I consider that "control by any other means"in s 2A(1)(a)(iii) encompasses other forms of legal control as discussed by Clifford J in Concepts 124 and does not extend to factual control. Furthermore, this is not a case of the type discussed by Judge Bathgate inCase K 54 where it is not possible to discern legal control. While the Commissioner seeks to raise issues of factual control she has proceeded on the basis that legal control is able to be determined in each group.[86] The Commissioner cross-appeals against this finding. She contends that control can be decided as a matter of fact under (iii). She submits that the evidence in this case shows that Mr Russell controlled both Staithes and Whitby.[87] The Commissioner summarised the evidence upon which she relies toestablish Mr Russell's control over Staithes as follows:14 Staithes Drive Development Ltd v Commissioner of Inland Revenue, above n 1 at [76].15 At [75].76. In summary, Mr Russell had factual control of the appellant at the time of the sale of the Property because of:76.1 Mr Russell's relationship with the appellant (as its founderand former director),76.2 Mr Russell's relationship with Mr Mason (who admits to following Mr Russell's directions),76.3 Mr Russell's involvement in setting up the appellant's chainof ownership,76.4 Mr Russell's role as receiver of ECL and decisions not toadvise the Official Assignee or the EVL shareholders that he was using ECL and that it would be involved in property transactions,76.5 Mr Russell's statement that he could get EVL restored to the Companies Office register, and76.6 the absence of any other clear controller of the appellant.[88] The following is relied on as evidence of factual control over Whitby during the same period:77. Similarly Mr Russell had factual control of Whitby during the same period of time because of:77.1 Mr Russell being the director of Whitby when the Property was transferred to the appellant,77.2 Mr Russell's relationship with Mr Mason (who admitted tofollowing Mr Russell's instructions),77.3 the Mannings' non-existent relationship with Whitby as ultimate shareholders (Mr Russell stated that it was complicated like the template cases),77.4 the fact that Mr Russell did not discuss the sale of the Property with the Mannings before it was sold,77.5 the absence of any other clear controller of Whitby.[89] In Concepts 124, Clifford J held that, in addition to being associated pursuant to the voting interests test in (i), the parties were also associated pursuant to (iii):16I consider, finally, the Commissioner's alternative argument that Mr Cummings had control of Ormiston through his ownership of 100 per cent of Flatbush given Flatbush's position as the trustee of the FBH Trust, with the capacity to appoint secondary beneficiaries, and personally, during16 Concepts 124 v Commissioner of Inland Revenue, above n 7 at [79] and [80].his lifetime, holding the power of appointment in removal of trustees. As the Commissioner submitted, in RWR v AJR the High Court concluded:In the present case the trust deed gave RWR, as settlor, the power to appoint a new trustee. The trustee appointed by him was a company of which he is the sole director and sole shareholder. The combined effect of those two factors is that RWR has control over the trust.[80] I therefore find that, through that approach also, Mr Cummings controlled Ormiston.[footnotes omitted][90] The case of RWR v AJR cited above was an appeal from the Family Court. The issue was whether the respondent was entitled to compensation under s 44C of the Property (Relationships) Act 1976 in respect of property transferred to a discretionary trust. Given the different statutory context, I consider the case to be of little direct assistance in determining whether the incidences of control in this case fall within (iii).[91] In Himley Estates Ltd v Commissioner of Inland Revenue, Lord Hanworth observed that the phrase "by any other means whatever in the hands of those persons" in the relevant statute seemed to indicate that there could be a case wherevoting power was in the hands of persons who were subservient by some other means to another person.17 Lord Hanworth said that this required looking at wherethe control is given by the articles of association and seeing whether it was "by any other means in the hands of those persons". In addition, their Lordships considered that any notion of subservience would need to be through some legal means such as contract or fiduciary relationships.18[92] In Case K 54,19 Judge Bathgate considered the meaning of the word "control"in s 55(8) of the GSTA as it was in force at that time. The Judge noted that control was not expressly restricted to de jure control rather than de facto control. He noted that there were some cases under the GSTA where "control" was decided as aquestion of fact, for example where it had to be decided whether a trade was carried17 Himley Estates Ltd v Commissioner of Inland Revenue [1933] 1 KB 472, (1932) 17 TC 367 (CA).18 At 486, 379.19 Case K 54 (1988) 10 NZTC 444 (TRA).on in a country depending on where the control of the business of the trading entity was situated. However, the Judge held that in the context of the GSTA, and inparticular s 55(8), "control" could not mean anything other than legal control.[93] It was common ground between the parties that "control by any other means whatsoever" encompassed legal control. The issue as framed by the TRA's decisionand in both counsel's submissions was whether or not "factual control" was alsocovered by the subsection. I consider that the categorisation of "control" as beingeither legal or factual is not of substantial assistance in determining whether such control is captured by (iii). Efforts to distinguish between legal and factual control can obscure the proper enquiry. A power of appointment contained in a trust deed may be a legal power, but that does not make it an incidence of legal control. Arguably, such a power gives rise to factual control of a company rather than legal control. In any respect, that distinction does not determine whether such an incidence of control falls within (iii). Each case will need to be decided on its own facts. My enquiry is limited to determining whether (iii) encompasses the type of control relied upon by the Commissioner in this case. In the absence of any analogous cases, I have approached the question as a matter of statutory interpretation.[94] My starting point is the plain meaning of the words in (iii). I accept that construed in isolation, (iii) would seem to be of the widest import, and could be interpreted so as to encompass the type of control at issue in this case. That flowsfrom the word "whatsoever" in the subsection. However, I consider that, construedin legislative context, the incidences of control relied upon by the Commissioner do not fall within the meaning of (iii). My reasons for reaching that view are set out below.[95] Subsection (iii) must be interpreted in light of (i) and (ii). I consider that theword "other" in (iii) means that (iii) is designed to capture those cases which fall outside (i) and (ii). Whilst I accept that association may be found under more than one subsection in some cases, having found association pursuant to (i), it is not necessary to also then find that the parties are associated, on much wider and uncharted grounds, under (iii). That is sufficient to dispose of the cross-appeal, butout of respect for the Commissioner's comprehensive submissions on this issue, Imake some general observations about whether (iii) could be construed as extending to the type of control at issue in this case in any respect.[96] The types of control at stake in this case do not relate to the ownership/voting interest of the companies to the transaction. I have doubts about whether Parliament intended to capture those forms of control under (iii). In the Commonwealth model of company law, the ultimate power over a company rests with shareholders, as opposed to directors. Generally, shareholders are able to dictate the outcome of decisions of the company by virtue of their voting strength.20 Control over companies has therefore traditionally been measured by reference to the ownership interests in a company.21 That approach is reflected in (i) and (ii) which provide for ways in which that ownership interest may be measured for the purposes of determining control. It is reasonably arguable that "control" in (iii) also refers toownership interests in a company rather than other forms of control, such as thatexercised by directors. Whilst the "means" by which that control is achieved is to be interpreted very broadly ("any other means whatsoever"), it is arguable that those means must still relate or refer back to the ownership/voting interests in the company as the ultimate source of power, and therefore, control.[97] That interpretation is consistent with the statutory scheme of subsection (1). If (iii) is construed so as to refer to any and all forms of company control, then it would render the tests in (i) and (ii) somewhat redundant. Rather than operating as a"catch all" for those forms of control which are not captured by (i) and (ii), thesubsection would operate as a primary provision of such width that the tests in (i) and (ii) would have little utility in determining control in the company context.Given the comprehensive way in which "voting interests" in particular has beendefined in the Income Tax Act, I consider it unlikely that Parliament intended (iii) to operate in that way.20 Peter Watts, Neil Campbell and Christopher Hare, Company Law in New Zealand, (Lexis Nexis, Wellington 2011) at 266.21 See for example Inland Revenue Commissioners v J Bibby and Sons Ltd [1945] 1 All ER 667 (HL); and Himley Estates Ltd v Commissioner of Inland Revenue, above n 17.[98] Furthermore, I do not consider a very wide interpretation of (iii) would sitcomfortably with the rest of the definition of "associated persons" in s 2A.Subsection (1) sets out a broad range of relationships deemed to be relationships between associated persons. These include a relationship between a trustee of a trust and a beneficiary of a trust (s 1(f)), and a partnership and a person who is associated with a partner in that partnership (s (1)(e)). Subsection (1)(i) provides for association by way of a tripartite relationship where person A and person B are associated if person B is associated with person C under any one of the paragraphs in (a) to (h) and person C is associated with person A under any one of paragraphs (a) to (h). Subsection (4) extends this even further in the case of companies by treating anything held by one associated person as held by the other.[99] The net of structures and relationships deemed to be those of association is therefore cast widely; but the point at which the relationship is deemed to be one of association is also defined with precision. That approach avoids investigation and enquiry into the circumstances of each case. It also avoids unpredictability and uncertainty as to the application of the law. An overly broad interpretation of (iii) would not only be unnecessary given the breadth of relationships captured by s 2A, but it could also disrupt the certainty and predictability in the application of the associated person provisions in the company law context.[100] Finally, I do not consider a construction of (iii) to encompass the nature of the control in this case is necessary in order to give effect to the statutory purpose of the associated persons provisions. The "mischief" to which s 3A(3) and the definition ofassociation in s 2A are directed is sales of second-hand goods (and in particular land) where there is no real change in ownership and the transaction is entered into for the purpose of obtaining a tax benefit.22[101] Section 76 of the GSTA, which allows the Commissioner to void tax avoidance arrangements, is another means by which that purpose might be achieved. As discussed further in this judgment, many of the features relied upon by the Commissioner to show association, are features which suggest a high level of22 Inland Revenue Commentary on Taxation (Annual Rates, GST and Miscellaneous Provisions Bill(May 2000).artificiality or contrivance giving rise to a tax avoidance arrangement. I consider the powers in s 76 operate as a further backstop to capture structures between parties which are, in reality, between the same people despite falling outside the associated persons definition. Given those broad powers, I consider it unnecessary to construe (iii) as extending to the type of control at issue in this case so as to achieve the underlying purpose of s 2A(1).[102] It follows that I do not consider the words "control by any other means" in (iii) extends to Mr Russell's factual control of the two companies to the transaction.I therefore agree with the TRA's decision and dismiss the cross-appeal.Is there an arrangement of tax avoidance pursuant to s 76 of the GSTA?[103] Despite finding that the parties were "associated" pursuant to (i), the TRA went on to consider the Commissioner's alternative argument that the input credits were claimed as part of a tax avoidance arrangement and were therefore void pursuant to s 76 of the GSTA.[104] The TRA found that Staithes entered into an arrangement consisting of at least the following:23(a) The sale of the shares in the Vendor (which company was not registered for GST) to Brothers which was not a company owned by Mr Z as provided for under the Share Agreement.(b) The incorporation of the Disputant which was owned through a complicated ownership structure by a company that was already in liquidation and had been struck off the Companies Register.(c) The Property (being the Vendor's sole asset) was sold to theDisputant.(d) Clause 14.3 of the further terms of sale in the ASAP allowed for the transfer to the Property on payment of the deposit in exchange for a General Security Agreement being executed in favour of the Vendor and registered on the PPSR.(e) The transfer of title of the Property from the Vendor to the Disputant occurred on 1 March 2006 when the deposit was not paid until 11 July 2006.23 Staithes Drive Development Ltd v Commissioner of Inland Revenue, above n 1 at [110].(f) The structure and payment of the deposit and instalments by the Disputant whereby payments were not made in accordance with the final contract variation; no cash sums were paid; and payments were made through Project Management to the Vendor.(g) The Disputant and Project Management entered into the Management Contract two days before the sale of the Property to the Disputant.(h) On the day before the sale there was a change of directors whereby the directors of the Disputant and Vendor swapped directorships.(i) The disputant claimed a second-hand goods input tax deduction on the purchase of the Property.[105] The TRA found that the increase in entitlement to a GST refund resultingfrom the arrangement satisfied the definition of "tax avoidance" in that subsection.24As to whether the purpose was tax avoidance, the TRA found that, viewed objectively, there was no cogent explanation to support a non-tax purpose of the arrangement. The Judge was satisfied that the arrangements were put in place in order to enable Staithes to claim input tax credits which it would otherwise not have been entitled.25[106] The TRA agreed with the Commissioner's submission that Parliament wouldnot have contemplated that an input tax credit would be available on the sale of the property where the parties had gone to such efforts to minimise their formal association and where a high degree of contrivance, pretence and artificiality was evident.26[107] Finally, the TRA considered that the arrangement had the purpose or effect of tax avoidance that was more than merely incidental. It found that the arrangement was entered into for the sole purpose of gaining access to input tax credits on the transfer of the property from Whitby to Staithes.27 Upon undertaking the reconstruction allowed for under s 76(3), the TRA concluded that the disallowance of the claim for second-hand input tax credits was sufficient to counteract any tax advantage.2824 At [112].25 At [117].26 At [121].27 At [134].28 At [135].[108] Staithes says the TRA was wrong to find that there was an arrangement with a dominant purpose of tax avoidance. It says that the land was sold by a company ultimately owned by one group of shareholders to another company owned by a different group of shareholders. The purchase price paid for the land was a market price. The fact that the price was paid in instalments and by way of journal entry does not constitute tax avoidance. Finally, Staithes says there was no tax avoided because a property development company is entitled to claim the GST input and will account to the Commissioner for the tax received on the sections once the development of the land is complete and the sections are sold.[109] I accept that, viewed in isolation, there is nothing objectionable about the individual elements of the transaction for the sale and purchase of the land. But determining whether there is tax avoidance requires the various components of the arrangement to be looked at in combination and to be weighed in light of the factual matrix.29[110] Considered in combination, I am satisfied that the TRA's conclusion that thescheme was one of tax avoidance, if the parties were not associated, was correct. Iagree that the elements listed at [101] of the TRA's decision (and reproduced above)captured the basic components of the arrangement. There was no other real purpose in the scheme except to avoid the associated parties' provisions so that Staithes couldobtain an input tax credit to which it was not otherwise entitled. Tax avoidance was the central purpose of the entire scheme.[111] I do not agree with Staithes' submission that there was no tax avoidance. Tax avoidance is defined under s 76(8) of the GSTA to include an increase in the entitlement of a registered person to claim a refund of tax. That is the position in this case. The purpose of the arrangement was to allow Staithes to claim a tax entitlement to which it was not otherwise entitled.[112] I also agree with the TRA's conclusion that there was a very high degree ofcontrivance and artificiality in the arrangement. There was no real reason for29 Glenharrow Holdings Ltd v Commissioner of Inland Revenue [2008] NZSC 116; (2009) 24 NZTC 23,236 at [34].Staithes to be incorporated with a complex ownership structure, including an ultimate beneficial owner which had been struck off the companies register in 1996, except to avoid the associated parties provisions of the GSTA.[113] In summary, I do not consider that there was an error in the TRA's decisionregarding tax avoidance and I agree with the conclusions expressed.Did the TRA err in upholding the imposition of shortfall penalties on the tax avoidance arrangement?[114] The Commissioner sought shortfall penalties if it was found, under the alternative argument, that there was a tax avoidance scheme. Shortfall penalties were not sought on the primary argument of association.[115] The Commissioner argued that Staithes was liable for a 100 per cent penalty for taking an abusive tax position in respect of the 30 September 2007 and 31 January 2008 GST periods.30 Only two of the three tax periods were considered as the tax shortfall in the January 2007 period was less than $20,000, which is under the threshold for imposition of penalties pursuant to s 141D of the TAA. Alternatively, the Commissioner said Staithes had adopted an unacceptable tax position and was liable for a 20 per cent penalty under s 141B of the TAA.[116] The TRA reviewed the statutory requirements of s 141D finding that the key elements in terms of the taking of a position; resulting shortfalls; and the applicable threshold amounts had been satisfied.31 The key issue was whether the tax positiontaken was an "unacceptable tax position" for the purposes of the Act. Under s 141B (1) of the TAA, an "unacceptable tax position" is one which, viewedobjectively, fails to meet the standard of being about as likely as not to be correct. After reviewing the relevant authorities, the TRA concluded that having found thatthe arrangement was a tax avoidance arrangement, Staithes had taken an "incorrect"(and therefore unacceptable) tax position pursuant to s 141D. The dominant purpose of this arrangement was to avoid tax. Staithes was therefore found liable for a30 Staithes Drive Development Ltd v Commissioner of Inland Revenue, above n 1 at [179].31 At [179].penalty of 100 per cent of the tax shortfall, which was then reduced to 50 per cent toreflect Staithes' previous behaviour in accordance with s 141FB(2) of the TAA.[117] Staithes appeals this finding on the ground that the Commissioner has acted inconsistently by not imposing shortfall penalties on the primary argument of association, but claiming them on the grounds of tax avoidance. Staithes says the Commissioner cannot have it both ways. If the penalties were not claimed under the primary head, they should not be allowed under the alternative.[118] In part, I consider that this argument has developed out of the different approach apparently taken by the Commissioner in front of the TRA, than at the earlier stages in the disputes procedure. In the earlier stages, the penalty was imposed on the basis that the tax position taken by the appellant was unacceptablebecause, while on a plain reading of the GSTA, the appellant's contention that theparties were not associated was about as likely as not to be correct, when the avoidance provision was also considered the position taken by the taxpayer was not about as likely as not to be correct. Thus the penalty was imposed on the basis thatthe taxpayer's overall position was unacceptable because it was likely to be taxavoidance. While that conclusion rested on a finding that there had been tax avoidance, it did not mean that the penalty was not sought if it was also found that the parties were associated.[119] However, the Commissioner's position before the TRA appears to havechanged. As I interpret the TRA's decision,32 and on the basis of the Commissioner'ssubmissions made before me, the shortfall penalties are only sought if theCommissioner's primary ground of association fails, but the tax avoidance findingsare upheld. In other words, pursuant to the TRA decision, and given my findings on"association", the appellant does not have to pay shortfall penalties. That may dealwith the appellant's complaint under this head but I nevertheless deal with thesubstantive position as argued before me.[120] I agree with the appellant's submission that a taxpayer only has one taxposition. However, I do not consider that the TRA erred in concluding that Staithes'32 At [177].position was an abusive tax position. It was not "about as likely as not to be correct". If the parties were not associated, I consider that it was obvious that the arrangement would have come within s 76 of the GSTA. This means that theposition was unacceptable. I also agree with the TRA's conclusion that the dominantpurpose of the arrangement was to avoid tax.[121] The Commissioner was entitled to make alternative arguments and to decide to seek shortfall penalties only in respect of the tax avoidance argument, but not the primary argument of association. There is no inconsistency in that position. Whether or not the Commissioner seeks shortfall penalties under the primary head does not affect the analysis of whether the shortfall penalties should be imposed under the alternative head. The TRA considered the relevant statutory provisions, applied the relevant legal principles and reached a conclusion which was plainly correct. I see no reason to depart from that conclusion.Result[122] In summary, I have found:(a) that the Commissioner was entitled to pursue the voting interest argument under s 2A(1)(a)(i) pursuant to s 138G of the TAA;(b) that the parties were associated pursuant to s 2A(1)(a)(i);(c) that s 2A(1)(a)(iii) does not encompass the type of "control" reliedupon by the Commissioner in this case, and accordingly the parties were not associated pursuant to s 2A(1)(a)(iii);(d) in the alternative,(i) if the parties were not associated pursuant to s 2A(1)(a), then the claim of input tax credits was otherwise void against the Commissioner pursuant to s 76 of the GSTA as being part of a tax avoidance scheme; and(ii) the tax avoidance position taken by Staithes was an abusive tax position justifying the imposition of a 100 per cent penalty on the resultant shortfall tax for two periods of tax pursuant to s 141D of the TAA, reduced by 50 per cent pursuant to s 141FB(2) of the TAA.[123] Staithes' appeal is dismissed. The Commissioner's cross-appeal is also dismissed.[124] If the parties are unable to agree on costs, then memoranda should be submitted within 10 working days of receipt of this judgment and costs will be determined on the papers.___________________Edwards J