Tax Avoidance: Causes and Solutions - Scholarly Commons Home

of tax avoidance. The “predication” approach was enunciated by Lord Denning in the
Newton 150 case, his Lord stated:
“In order to bring the arrangement within the section, you must be able to predicate - by
looking at the overt acts by which it was implemented - that it was implemented in that
particular way so as to avoid tax. If you cannot so predicate, but have to acknowledge that
the transactions are capable of explanation by reference to ordinary business or family
dealing, without necessarily being labeled as a means to avoid tax, then the arrangement
does not come within the section.”
The predication approach is still used to determine or classify a purpose or effect of the
arrangement as being one of tax avoidance. For example, in Challenge 151 , Woodhouse P in
his dissenting judgment confirmed the applicability of the test in respect of the revised
legislation.
“In any case it is my opinion that the test laid down by Lord Denning in the Newton case
continues to have application for New Zealand, for s 99 just as it did for the earlier s 108.”
The term “purpose or effect’ was discussed at Ashton 152 as:
“If an arrangement has a particular purpose, then that will be its intended effect. If it has a
particular effect, then that will be its purpose and oral evidence to show that it has a
different purpose or different effect to that which is shown by the arrangement itself is
irrelevant to the determination of the question whether the arrangement has or purports to
have the purpose or effect of in any way altering the incidence of income tax or relieving
any person from his liability to pay income tax.”
It was also held in Tayles v CIR 153 that it is only the purpose of the arrangement which is of
concern and the term “effect” as used in the definition is redundant. The House of Lords in
Newton v FCT 154 held that “purpose” does not mean motive or intention, but the end or
effect which the arrangement is intended to achieve.
150 [1958] HCA 31.
151 (1985) 9 TRNZ 81,86 (CA).
152 [1975] 2 NZLR 717.
153 [1982] 2 NZLR 726 (CA).
154 [1958] HCA 31.
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