Tax Planning and Anti-Avoidance: An Analysis for Troy and Sheri

Topic -  Tax planning and anti-avoidanceFactsTroy  is  a  qualified  radiologist  who  operates  a  successful  radiology  practice  from  purpose- built rooms attached to his house. Troy works in the practice three days a week, and the other two days he is contracted to provide radiology services to several rest homes in his region. Troy  travels  to  the  rest  homes  and  undertakes  the  radiology  procedures  at  the  rest  homes,  spending approximately half a day at each. The radiology practice generates a net income of approximately $45,000 per annum. Troy receives $40,000 per annum from his contract work with the rest homes.Troy’s wife, Sheri, is a qualified IT consultant. Sheri returned to work part-time in February 2019, after spending several years looking after their children. Sheri undertakes contract work from her home-office for several construction companies and also takes on private clients. The net income from Sheri’s IT consultancy work is approximately $25,000 per annum.In April 2019 Troy and Sheri acquired two rental properties, both of which are highly- geared and generate total tax losses of approximately $50,000 per annum. When the rental properties were  acquired,  Troy  and  Sheri  set  up  a  company,  T&  S  Ltd,  in  which  to  hold  the  rental  properties. Sheri now runs her IT consultancy business through T & S Ltd and Troy also now runs his private radiology practice through the company. Troy continues to run the rest home contracts through his own name.At the end of the income year 2020, Sheri and Troy plan to draw salaries from T & S Ltd for their  respective  share  from  IT  consulting  and  radiology  work,  based  on  the  profit  the  company has made. The profit will be split on a proportionate basis, based on the number of hours each has spent in their respective businesses during the year.Due  to  the  significant  losses  the  rental  properties  will  generate,  the  profit  in  T  &  S  Ltd  is  expected to only be approximately $20,000 per annum, with the salaries being split 70:30 to Troy and Sheri respectively.Required:•Write a report to Troy and Sheri advising them of any problems, you see in the above steps and  whether  the  arrangement between T  &  S  Ltd  and  Troy  and Sheri  is  void  as  against  the  Commissioner  by  virtue  of  s  BG  1  ITA  2007.  Apply the facts above and use appropriate references to the relevant sections of the  Income  Tax  Act  2007  and  conclude  whether  there  has  been  a  “tax  avoidance arrangement” which could be attacked by Inland Revenue under the general anti-avoidance rule [GAAR] of the Income Tax Act 2007 and what the consequence would be.•Your report should cover the following:(1)At  least  three  significant/relevant  New  Zealand  tax  cases  to  support  your  opinion.  You  can  refer  to  leading  cases  from  other  jurisdictions  and other New Zealand cases.
3(2)The  steps  from  the  Interpretation  Statement  issued  by  the  IRD  on  13  June   2013   and   relevant   tests   with   relevant   case   law.   (The   Interpretation  Statement  issued  by  the  IRD  on  13  June  2013  is  available on Blackboard under the assessment icon).(3)Your report should also consider what (if any) shortfall penalties taxpayers, T roy and Sheri may be liable for. Include statutory authorities (The Income Tax Act 2007 and The Tax Administration Act 1994).