The Supreme Court has upheld an appeal by Inland Revenue against Redcliffe Forestry Venture, the latest chapter in the Trinity forestry saga.

The Trinity case, which involved up to 300 investors in a forestry scheme in the late 1990s, has been used as a precedent by the IRD in tax avoidance cases since 2008.

Trinity investors lost every stage of their court battle with the IRD. But in 2009, Redcliffe and six other Trinity investors launched a new legal challenge to an earlier 2004 High Court judgement.

Led by tax lawyer Garry Muir, they claimed the IRD's original assessments of Trinity investors were invalid because the department had knowingly applied the wrong income tax provisions to their expenditure.

Muir claimed this was fraud, one of the exceptions for reopening a court judgement after all appeal rights have been exhausted.

If Muir won his case, experts feared it might nullify all previous decisions in the Trinity case, and possibly other big tax avoidance cases.

However, today's ruling by the Supreme Court was that Redcliffe's allegation of fraud was in fact a claim of legal error.

The court said an objection by the IRD commissioner was "soundly based" and should have been upheld under appeal.

In future, the court said future claims of fraud which challenged High Court judgements should "undergo pre-trial scrutiny" so the system was not abused.

The Trinity scheme was deemed to be tax avoidance because its investors claimed immediate tax deductions on a harvesting fee far in the future.

Investors were to pay a $2 million per hectare fee when the trees were harvested in 50 years time, but attempted to claim tax deductions on the fee in the meantime.

If the scheme had run its course, IRD estimated that up to $3.7 billion in tax revenue would have been at stake.

- © Fairfax NZ News