Most tax lawyers my age will remember Prof John Prebble QC's book The Taxation of Property Transactions. It was the go-to book whenever an issue arose involving the sale of land or property. Nowadays we tend to look at Inland Revenue Interpretation Statements.
Their most recent one is IS 20/08, which is focused on when development or division work is “minor”. Increasingly Inland Revenue interpretation statements include examples and this interpretation statement is no exception. The use of examples are helpful but raise an issue as to the extent to which they are binding on the Commissioner. Clearly, the Commissioner is free to try and distinguish the facts of any particular case from those appearing in her example but what if the facts in a particular case are on all fours with the example? Can the Commissioner argue that she was wrong with the view taken in the example?
The unpalatable answer is that she can argue that her example was wrong. This is because she cannot be estopped in issuing assessments. The only criteria that she must comply with under s 113 of the Tax Administration Act 1994 (TRA) are that the assessment she issues is correct. If that means blowing off an example in a standard practice statement that is wrong then she must abandon the example if it is truly wrong. That proposition follows from a bunch of older cases like Europa Oil (NZ) Ltd v C of IR; C of IR v Associated Motorists Petrol Co Ltd 69 ATC 6072,  NZLR 321, Maxwell v C of IR  NZLR 683, Case M113 (1990) 12 NZTC 2,729, Challenge Realty Ltd v C of IR (1990) 12 NZTC 7,022 and Case S74 (1996) 17 NZTC 7,459.
However, from a taxpayer’s perspective, the fact that the assessment has been issued at odds with the example is helpful in persuading a court that the assessment may be wrong. This is because if the Commissioner is flip-flopping on the point, there is no guarantee that the latest position, as expressed in the assessment, is correct. Just like in any litigation a constant changing of position tends to weaken the parties case in the eyes of the court. That same dynamic would be at play in any litigation where the Commissioner assessed contrary to the facts in an example.
One would also expect the Commissioner to publicly withdraw an interpretation statement that has an example that they no longer think is accurate and to give taxpayers the ability to rely on the old view until the point it is withdrawn. To do otherwise erodes the voluntary compliance ethos on which modern tax administration is built.