Safi v CIR [2026] NZHC 745

In 2024 the Taxation and Charities Review Authority ("TCRA") dismissed challenges by 6 taxpayers to assessments raised by the Commissioner. The taxpayers were involved with 2 companies that exported vehicle parts from New Zealand to the United Arab Emirates ("UAE"). The parts were sourced by purchasing used and sometimes damaged vehicles in New Zealand, breaking them down and shipping them to the UAE. A related company received the vehicle parts in the UAE and sold them to international purchasers. Each taxpayer had a different role in and relationship with the companies and their businesses which they said varied over time.

The Commissioner considered that substantial sums of income had been suppressed. The taxpayers said the funds were not from the car parts trade, though they were routed through the UAE, but from the sale of real estate, timber and related loan instruments in Afghanistan and Pakistan. They said none of the disputed funds came from business activities. However, they did not convince the TCRA, which confirmed the assessments and imposed an evasion shortfall penalty.

The taxpayers appealed the whole of the TCRA decision but abandoned the appeal apart from the question of shortfall penalty, in relation to which the Commissioner bears the burden of proof on the balance of probabilities. The High Court has now considered that limited appeal and found for the Commissioner, concluding that the burden and standard of proof had been met and confirming the evasion penalty.

The High Court found that the taxpayers’ knew that they were receiving funds from a trading enterprise and that they knew they were obliged to return such income for tax purposes. Against that background their explanations for the origin of the sums they received were implausible and had only been advanced when they came under the Commissioner’s scrutiny. The abandoned appeal on the substantive assessments meant those were uncontestable. The unchallenged assessments, together with the taxpayers' knowledge, established that, at the time of taking their respective tax positions, the taxpayers knew they could be under some obligation to pay income tax in relation to the remittances from the UAE company. Their failure to do so in the face of the assessments they had accepted meant that the Commissioner had proved on the balance of probabilities to the requisite standard, that the taxpayers took those tax positions to evade the assessment or payment of tax.

There are several aspects of this decision to note. First there may have been a tactical error by the taxpayers in abandoning the appeal over their substantive liability. The Court seems to have accepted that, as the assessments were conclusive from that point, the factual basis for liability was conceded by the taxpayers and the only matter to be determined was whether the taxpayers had known of their tax obligations and intentionally excluded the income to escape assessment or payment when taking their original tax positions. Had the taxpayers continued their general appeal, this avenue may not have been as clearly available to the Court.

Secondly, the Court described the taxpayers' explanations as implausible and noted that they had only been deployed when the taxpayers came under scrutiny by the Commissioner. It is not clear why this should have been unusual unless there was already a conclusion that the taxpayers knew they had received income. If the sums in question had indeed not been income, it would not have been usual for them to be explained in any way to the Commissioner unless and until he queried them. 

Thirdly, the Court seems to have concluded that because the disputed sums had been confirmed as income on the balance of probabilities (at least from the abandonment of the general appeal), the necessary elements of knowedge and intention to evade had been established to the same standard. That does not necessarily follow. 

Fourthly, the Court appears to have concluded that it was enough that the taxpayers knew that they could be under an obligation to pay tax on their receipts so that it was unnecessary to reach the view that they knew of the liability and intended to evade it. It is possible the Court conflated the possibility of knowledge with the probability standard. The decision deserved further scrutiny. 

(c) G D Clews 2026