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03 Apr 2007
Appeal Status

Bill of Rights

2007 case note - taxpayer's appeal dismissed and assessments upheld - Bill of Rights, time bar.

Peter Lloyd Machirus v The Commissioner of Inland Revenue


The High Court dismissed the taxpayer's appeal and upheld the assessments and found there was no breach of the Bill of Rights Act. He further upheld the Commissioner's cross-appeal and held that the Taxation Review Authority erred in finding certain assessments statute-barred.



The taxpayer derived income from legal and illegal means. His case, at least in part before the Taxation Review Authority (TRA), was that the proceeds of his criminal activities were not liable to either income tax or GST. The TRA confirmed the Commissioner's reassessments relating to the income tax liability and the November 1992 to May 1993 GST periods. However the TRA quashed the reassessments relating to the subsequent GST periods on the basis that they were time-barred.

The taxpayer appealed the TRA decision. The questions for determination in respect of his appeal for the High Court were stated by the TRA as being:

    1. Whether the TRA was wrong in holding that the income tax assessments for the 1991 to 1993 tax years were wrong;
    2. Whether the TRA was wrong in finding that the taxpayer had not proven that the relevant income had been derived from criminal activities;
    3. Whether the TRA was wrong in holding that the taxpayer had not proven that the GST outputs and inputs were monies derived from criminal activities;
    4. Whether the TRA was wrong in holding that the taxpayer had not proven that the Commissioner had breached the New Zealand Bill of Rights Act 1990 ("NZBORA")

The taxpayer did not dispute those parts of the TRA decision in respect of questions (i), (ii) and (iii) but rather claimed his main appeal point was focused on sections 27 and 21 of NZBORA regarding unreasonable search and seizure and the right to natural justice. He also argued that specifically, a $50,000 gambling debt was deductible.


The Commissioner cross-appealed the TRA decision on the basis that the Authority was in error to hold that an alleged failure to serve the GST reassessments of 30 November 1993, 31 May 1994, 30 November 1994 and 31 May 1995, on Mr Machirus until 2002 meant the reassessments were time-barred. The TRA was satisfied that the Commissioner had correctly calculated the GST owing by Mr Marchirus for each of the four periods however the Authority held that failure to give notice of the reassessments until 2002 invalidated the reassessments.


Taxpayer's Appeal

His Honour Justice Ronald Young noted at the outset that the taxpayer offered no evidence or arguments to challenge on appeal the correctness of the Income Tax and GST assessments. Accordingly he held that they were confirmed.

Regarding section 21 of the NZBORA His Honour held that the taxpayer's arguments had no basis. The taxpayer's argument was essentially based on the improper withholding of relevant information from him by the Commissioner until the TRA hearing and amounted to a miscarriage of justice such that justified a new trial.

His Honour found that on the evidence before him the taxpayer held sufficient business records and that the cheque butts in particular had little or no relevance to his case and in any event the information they contained could have been obtained through his bank statements. The taxpayer had a chance to produce these but did not, which illustrated that the taxpayer knew they had no relevance.

I have approached this aspect of Mr Machirus' appeal as based on the claim that there was relevant evidence in existence which Mr Machirus would have wished to present to the Authority but which was not reasonably available to him before or at the Authority hearing. Essentially the new trial test of whether a miscarriage of justice has occurred. What is clear is that the cheque butts themselves have no real relevance to this case. It is also clear the information the cheque butts contained could have been obtained elsewhere either through his bank statements and cancelled cheques, or through the receipts, notebook and diary kept by him....

I am therefore satisfied that there is no ground of appeal based on s21 of the New Zealand Bill of Rights Acts regarding unreasonable search and seizure, nor is there any appeal ground based on a miscarriage of justice from relevant evidence coming to light after the Authority hearing.

Section 27 of the NZBORA was simply disposed of by the His Honour noting:

Firstly, I doubt the application of section 27 to decisions by the Commissioner in this case. Section 27 is concerned with the adjudicative function. The Commissioner's function in this case is in collecting the tax due. Any determination of a dispute regarding whether tax is due and the amount due will be decided in the District Court or the Taxation Review Authority or the High Court.

Secondly, without a timeline and an identification of reasons for delay it is not clear exactly what Mr Machirus complains about regarding delay. Since this case has been in the High Court much of the delay has arisen from either Mr Machirus' failure to comply with the Court timetable or his pursuit of unsuccessful pre-appeal applications.

Regarding the claimed $50,000 deduction, the High Court upheld the TRA finding that there was insufficient evidence to sustain such a claim and that the Commissioner's reassessment was correct.

Commissioner's Cross–Appeal

Due to the operation of section 27 of the GST Act 1985 the Commissioner's cross-appeal was allowed. The TRA had erred when it treated the failure to notify the GST reassessments as meaning that they were time-barred.

It is clear, therefore, that even assuming that no notice of the reassessment was given to Mr Machirus after 2 October 1995 until 2002, the failure to do so does not invalidate the reassessment.

It was also noted by the Court that:

Although not essential to my decision, there was in any event strong evidence that in fact Mr Machirus knew of the reassessments well before the expiry of the four-year period in 1999.

New Zealand Bill of Rights Act 1990, Income Tax Act 1994, GST Act 1985