Commissioner entitled to recover interest and outstanding taxes
2008 case note - CIR able to recover interest on a sum paid into Court and company ordered to pay balance of the tax debt otherwise it would be liquidated.
Companies Act 1993
Commissioner able to recover interest on a sum paid into Court and company ordered to pay balance of the tax debt otherwise it would be liquidated. The interest sum did not have to be applied to the outstanding debt.
The taxpayer faced liquidation at the petition of the Commissioner. The debt (originally $78,734.35) was a result of the re-assessment of the taxpayer under Track A of the Russell template. The age of this matter meant it was under the old deferred tax rules and the taxpayer was obliged to pay half the tax in dispute ($39,385.66). The Commissioner had previously commenced liquidation proceedings for the unpaid non-deferred half of the tax in dispute. In those proceedings the taxpayer had paid half the tax in dispute into Court to stay those proceedings. The Court ordered that the "successful party" would receive the payment plus any interest it had earned.
By the time the taxpayer's various tax challenges and judicial reviews were resolved, the sum held by the Court was just under $100,000. Once the non-deferred tax sum was paid to the Commissioner approximately $58,000 in interest remained.
In the meantime, the Commissioner commenced another liquidation petition for the balance of the tax unpaid $39,348.69. The taxpayer opposed on a number of grounds-these are re-countered as the issues below.
His Honour dismissed each of the taxpayer's arguments:
- The debt was not able to be disputed. His Honour considered that on the facts there was no evidence that the debt was assessed to and paid by someone else. Even if there were he referred to Wire Supplies (2007) 23 NZTC 21,404 to conclude that it was for this other person who had been assessed to raise the issue of the taxpayer's assessments for the same money in that other person's own tax affairs.
- The facts precluded the application of Withey No 2 as there was evidence that a new due date had been properly applied.
- His Honour ruled there was no "election" by the Commissioner to apply the interest received from the payment into court to the taxpayer's benefit. The Judge accepted the Commissioner had been the successful party and that the interest element had not been earmarked to be used for the taxpayer's benefit. His Honour was not satisfied the alleged "election" was any more than a mistake and, also, he concluded the "election" was irrelevant as the initial Court order remained effective.
The end result is that the Commissioner is entitled to receive the interest without having to apply it to the taxpayer's debt and the taxpayer was given a week to pay the outstanding debt and court costs ($59,978.69) or it would be put into liquidation.