John Prebble Qc

Fictions of Income Tax

We cannot have an income tax without a concept of income. For a number of reasons, our concept of income must be artificial. A principal reason is that income tax law generally taxes the results of legal transactions rather than their underlying economic substance, which causes a dislocation between tax law, on one hand; and business profits and other targets of tax law; on the other. In order to make income tax work at all, the law must make a number of assumptions that are not in fact correct, assumptions as to both the factual and the legal nature of the taxpayer’s income. Particular reasons for the dislocation between income tax law and economic profits are, inter alia, that the law taxes the legal substance of transactions rather than the economic substance, the problem of place, and the problem of time. The author uses the term “ectopia�? to identify this dislocation. In this article, the author addresses criticisms made of the ectopia thesis, namely, that accountancy rules are similar in character to income tax rules, that more detailed legislation could cure these ills, and, especially, that the law is well used to fictions.

Kelsen, the Principle of Exclusion of Contradictions, and General Anti-Avoidance Rules in Tax Law

Kelsen’s huge opus contains little on taxation law. Nevertheless, several of his remarkable insights shed light on certain oddities of income tax law. General anti-avoidance rules, or “GAARs�?, are an example. GAARs are generally thought to be necessary; at least, many countries have enacted them in recent decades. But GAARs are subject to extensive criticism for vagueness. The reason is that GAARs override transactions that other parts of tax law permit, but it is difficult to determine which transactions GAARs apply to. Kelsen’s discussion of the logical Principle of Exclusion of Contradictions sheds light why this is so and on the fundamental nature of GAARs, which are an unusual form of law by any criterion.

Intention to Make a Profit and 'Business' in Section 65(2)(A) of the Income Tax Act 1976

Is an “intention to make a profit�? necessary for there to be business income within the meaning of section 65(2)(a) of the Income Tax Act 1976? English cases on an analogous provision suggest intention to make a profit is not required. Literal interpretation of the New Zealand provision tends to support this conclusion. However, starting from the case of Commissioner of Inland Revenue v Watson [1960] NZLR 259 (Henry J), the courts have found such an intention is necessary. Section 65(2)(a) of the 1976 Act is reproduced in a similar form in section CB1(1) of the Income Tax Act 2007. In 2009, the problem of defining when an economic gain should be taxable as business income remains controversial under the 2007 Act. An intention to make a profit remains a touch-stone for New Zealand courts.

The Emergence of Neutral Citation

Neutral citation is a form of citation where courts assign a unique sequential number to each of their decisions. The objective is to enable people to identify cases and text in them by reference to a single, unvarying reference, no matter the medium of publication. The sequence corresponds to the order in which courts release decisions throughout the calendar year. Using neutral citation to identify texts is an ancient convention and was used by writers such as Herodotus and Thucydides. Since the late 1990s, courts in England and Wales, Canada, and Australia have adopted neutral citation. It is expected that New Zealand courts will complete a full transition to neutral citation in the near future. Added March 2012: The New Zealand Law Style Guide, Second Edition, 2011, available online from the New Zealand Law Foundation, lists New Zealand courts and tribunals using neutral citations as at December 2011.

Structural Flaws of Income as a Base for Taxation

This article discusses Ross Parsons’s influential Wilfred Fullagar Lecture “Income Taxation – an Institution in Decay�? (1986) 3 Australian Tax Forum 233, in which Parsons opined that the considerable analytical shortcomings of the concept of income stem from income tax adopting the concept of income from the law of trusts, which is based on principles that are different from and irrelevant to the policies and imperatives of income tax law. An exploration of the history of income tax shows that the origin of the judicial concept of income as a tax base in fact stems from the income tax of 1799, which inherited the concept of income as a regular flow that is measured annually. However, the author agrees that the concept of income is fundamentally flawed. The ectopia of tax law comes about because tax law generally taxes the results of legal transactions rather than their underlying economic effects. Furthermore, the law must make a number of assumptions that are not in fact correct, which removes the base that the law taxes even further from the economic reality of the case.

Double Tax Agreements: Operation of the International Shipping Article When Moving from Cabotage to an Open Coast Policy: Business Profits, Seafarers’ Wages, Insurance Premiums, Chartering, and Value Added Tax

This paper discusses foreign shipowners who transport cargo between domestic ports, using ships that are engaged primarily in the international import/export trade. It compares the taxation of such foreign shipowners with the taxation of coastal shipowners. Areas of comparison include business profits from freight charges, seafarers’ wages and insurance premiums. The paper is a submission in respect of the New Zealand Transport Law Reform Bill, introduced in 1993.