Filing challenge out of time (Appeal)
2007 case note - taxpayer appealed the decision to not grant leave to commence proceedings out of time – expiry of response period, exceptional circumstances.
The taxpayer appealed the decision of the Authority which declined to grant leave to commence proceedings out of time, on the basis that no exceptional circumstances existed.
In about 2000, a dispute developed between the parties over tax payable in the 1994 and 1995 years. There were dealings between the taxpayer's solicitors and the investigator based in Nelson, Litigation Management and the Crown Law Office. The in-house accountant received copies of all communications between the parties but generally such communications took place between the taxpayer's solicitor and the Inland Revenue Department ("IRD").
The IRD sent a letter to the taxpayer's solicitor on 20 April 2006 to advise notices of assessment would be issued shortly. The letter also noted that the assessments would be sent directly to the taxpayer. A copy of the letter was sent to the in-house accountant, and the external accountant. The assessments were then issued on 27 April 2006. The taxpayer failed to commence proceedings before the response period expired on 26 June 2006, but did so on 10 August 2006.
The in-house accountant received the assessments on either 28 April or 1 May 2006, but took no action until 8 May 2006. That appeared to be due to the investigator having telephoned the external accountant in relation to the assessments, and the external accountant telephoning the in-house accountant who said he had received them and would contact the external accountant to discuss them.
In mid June 2006, the external accountant reminded the in-house accountant he had not forwarded on the assessments. The in-house accountant undertook to do so, but did not attend to that until 26 June 2006, the last day of the response period.
The taxpayer essentially advanced the same propositions that were rejected by the Authority. These included:
It was reasonable to expect the notices to have been copied to the solicitor given this is what had happened in the past. The failure of IRD to do this was beyond the accountant' control.
It was reasonable for the accountant to ignore the fact that the letter from IRD said the assessments would be issued shortly and what the time period was given the history of the proceedings.
Justice France considered the taxpayer's submissions owed much to the misreading of the Court of Appeal decision in Fuji Xerox. Whilst that Court accepted in isolation the fact the notices had not been sent to the agent who had been dealing with the dispute was beyond the taxpayer's control, it dismissed the argument that such a fact provided a reasonable justification. As in the current case, it was not a relevant factor once the taxpayer had the notices.
His Honour considered it was an impossible proposition to suggest that the statutory test of exceptional circumstances was met here. While errors were made they were not beyond the taxpayers’ control. It was incorrect to say the failure of the IRD to copy the letter to the solicitor was beyond the taxpayer' control. IRD advised the parties a week before the assessments were issued where they would be going and how long the period to challenge was. The same analysis in Fuji existed here-it was not the omission to send a copy that was causative of the failure to file in time but the omissions of the accountant who received the assessments.
Tax Administration Act 1994