Penny and Hooper ([2011] NZSC 95)[1] was a landmark taxation case in New Zealand that reached the Supreme Court of New Zealand, which was a major victory for the Inland Revenue Department (IRD) on the issue of tax avoidance.

Ian Penny and Gary Hooper were both orthopaedic surgeons in Christchurch, who had both restructured their respective business structures from a sole trader status to that of an employee working for an incorporated company, which had the effect of reducing their tax bill by tens of thousands of dollars per year due to the fact that in year 2000 the taxation rate for an individual became 39%, whereas for a company it was only 33%.

Ian Penny's structure was in fact so altered in 1997, well before the government created a personal vs trust/company tax rate differential.

The salaries of the surgeons under the new structure were substantially less than their previous incomes when they were sole traders.

(b) Has tax avoidance as one of its purposes or effects, whether or not any other purpose or effect is referable to ordinary business or family dealings, if the purpose or effect is not merely incidentalWhile it was clear that the surgeon’s salaries were way below market value (a concept somewhat new to tax legislation), and so arguably a tax avoidance arrangement, Penny and Hooper did initially successfully defend this matter in the High Court.