Taxpayer must issue NOPA to "Default" assessment
2005 case note - to dispute a 'default' assessment a taxpayer must issue a NOPA and file the missing return within the two month response period.
To dispute a "default" assessment a taxpayer must issue a NOPA and file the missing return within the two month response period.
The taxpayer failed to file tax returns for the 2000 and 2001 years. On 8 April 2002, the Commissioner issued "default assessments" under section 106 of the Tax Administration Act 1994 ("TAA"). A notice of claim challenging the default assessments was filed by the taxpayer on 15 July 2002 in the TRA. To bring proceedings under section 138B of the TAA the taxpayer also filed an application under section 138D of the TAA to commence proceedings outside the response period. On 31 July 2002 the taxpayer filed nil income tax returns for the 2000 and 2001 years. Doubting it was necessary to give the TRA jurisdiction to hear the challenge the Taxpayer also filed a "without prejudice" Notice of Proposed Adjustment ("NOPA"). The NOPA contained a request under s 89K of the TAA effectively requesting that the Commissioner accept the NOPA even though it was filed out of time. The Commissioner declined the request on 23 September 2002 and issued a conditional Notice of Response ("NOR") on 30 September 2002 advising the NOPA was rejected as being out of time as well as invalid and the tax assessed in the assessment made on 8 April 2002 was owed.
On 16 September 2002 in the TRA the Commissioner filed a Notice of Defence and an application to strike out the taxpayer's Notice of Claim. In February and March 2003 the Commissioner's strike-out application was heard by the TRA. The TRA declined the application on 19 May 2003. The present judicial review proceedings were then commenced in the High Court by the Commissioner.
After discussing the three possible interpretations put forward, the Court accepted the interpretation put forward by the Commissioner. That is:
- A default assessment under section 106 is not to be treated differently from any other kind of assessment for the purposes of Part 4A and Part 8A. Accordingly, there is no basis to construe section 89D as displacing the normal requirement for a taxpayer who wishes to contest an assessment to do so by way of a NOPA and this must be done within the applicable response period: section 89D(5). That is a prerequisite to the entitlement to challenge an assessment by commencing proceedings in the TRA for the purposes of section 138B(3).
- The only difference in the process for challenging a default assessment from the process which applies to other assessments is the requirement in section 89D(2) that the taxpayer must furnish a tax return for the assessment period. However, that provision does not provide for the tax return to be the method of disputing the default assessment. Rather, it is a requirement which must be met before the taxpayer may issue a NOPA under section 89D(1). That is why section 89D(1) is expressed to be subject to section 89D(2).
- If a taxpayer wishing to challenge a default assessment has not issued a NOPA in respect of the default assessment under section 89D(1) within the applicable response period in accordance with section 89D(5), which the taxpayer cannot do until he or she has furnished a return of income for the assessment period under section 89D(2), then that taxpayer will not have met the requirements of section 138B(3) and will not therefore be entitled to challenge the default assessment by commencing proceedings in the TRA.
- If a taxpayer has commenced proceedings in the TRA without complying with section 138B(3), in the circumstances of the present case, the Commissioner may apply to have the challenge commenced by the taxpayer struck out under section 138H and the TRA should strike the proceedings out because of the failure to comply with section 138B.
The Court also agreed that section 89D(1) of the TAA is expressed in permissive terms ("may") because there is no obligation on a taxpayer to challenge a "default" assessment. However, once the taxpayer decides to assert his or her entitlement to challenge the assessment, then he or she must do so in accordance with the process outlined in Part IVA.
Tax Administration Act 1994