Court of Appeal decides PPOA test

CIR v Diamond [2015] NZCA 613

Just before Christmas 2015 the Court of Appeal gave its judgment in the tax residence case of Diamond. It dismissed the Commissioner’s appeal and upheld the decision of the High Court that Mr Diamond was not resident in New Zealand because he did not have a permanent place of abode (“PPOA”) here in the relevant years.

The case focussed on whether the notion of a PPOA involved the mere availability of a place of abode in New Zealand, a proposition which the Commissioner advanced but which the Court rejected in favour of an approach which is much more based on whether there is an actual and continuing connection between a taxpayer and a specific place.

Justice Stevens, giving the Court’s unanimous decision, held that the structure of the residence provisions supported a conclusion that a PPOA means a place where a person habitually resides from time to time even of the taxpayer spends time overseas. He was not prepared to read the PPOA test as having the broader meaning contended for by the Commissioner without much clearer statutory language.

He reviewed the case law and noted that in every case where a PPOA had been confirmed the taxpayer had previously lived in the house found to be his or her PPOA or had subsequently returned to that house. This was in stark contrast to the position in Mr Diamond’s case where such use of the asserted PPOA simply did not exist – the relevant property had always been tenanted and was essentially an investment.
The Court set out the following principles for the application of the PPOA test:
  1. Whether a person has a PPOA is a question of fact. An overall assessment has to be made which will be highly contextual and will turn on the circumstances of the case.
  2. The inquiry cannot be separated into discrete questions but should be an integrated factual assessment directed to determining the nature and quality of the use the taxpayer habitually makes of a particular place of abode.
  3. The mere availability of a dwelling is not enough to make it a PPOA but neither will the unavailability of a dwelling through letting necessarily mean the loss of residence.
  4. Non-exclusive factors in considering the position of a taxpayer include continuity of presence in New Zealand and in the dwelling, duration of that presence, the durability of the taxpayer’s association with a particular place, and a consideration of the position before and after any absence from New Zealand.
The decision makes it clear that the Court of Appeal broadly accepts the case law that precedes Diamond, though on a basis were it is factually very specific and does not support the two stage inquiry for which the Commissioner contended. Although the residence test has to be applied annually, the PPOA element of the test involves be issues of continuity which require a consideration of what has gone before and come after the relevant year, in terms of a connection between the taxpayer and a place where the taxpayer could abide. That is not to say that the potential for the taxpayer to abide in that place will make it a PPOA. The case seems to confirm that at the very least some actual use of the property as a home, either before or after the relevant year will be required.

© G D Clews 2016

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