Reparation and section 109 of the Tax Administration Act 1994
2009 case note – Appeal against conviction for aiding and abetting company to not file GST return - reparation, s 109 Tax Administration Act, disputed facts hearing.
Mr Allan appealed against his conviction and sentence for aiding and abetting a company to knowingly fail to file a Goods and Services Tax ("GST") return intending to evade the payment of GST. The Court dismissed the appeal against conviction, but upheld the appeal against the amount of reparation that Mr Allan had been ordered to pay to Inland Revenue
Impact of decision
This decision differentiates between an assessment and a loss for the purposes of reparation. Where a convicted person wants to raise evidence at sentencing that was not called at trial, but relates to aggravating or mitigating factors, the court must hold a disputed facts hearing. There is no infringement of section 109 of the Tax Administration Act ("TAA") where the amount of reparation is challenged, as the convicted person is challenging the loss to Inland Revenue, not the assessment.
Reparation is limited to core tax; penalties and use of money interest should not be included in reparation orders.
Mr Allan ran a small business of buying and selling electrical equipment. He incorporated Logical Choice Ltd in December 2003. Initially his mother was the sole director and shareholder, though it was not disputed that Mr Allan ran the business. For the first nine months following incorporation until September 2004, the company filed two-monthly GST returns, all of which claimed input tax credits. Over the following 18 months to 1 March 2006, no GST returns were filed.
In June 2006, Mr Allan asked his chartered accountant to file these returns, but only provided the necessary information in August 2006. In the meantime, he filed a GST return in July in which he claimed an input tax credit. The outstanding returns were filed in September showing that the company owed $64,000 in GST. Following this, the shareholding and directorship of the company was transferred from his mother to Mr Allan and he put the company into voluntary liquidation. However, Mr Allan continued to operate his business and in November 2006 set up a new trading company.
Mr Allan was prosecuted for, and convicted of, nine counts of aiding and abetting a company (Logical Choice Ltd) knowingly to fail to file a GST return, intending to evade the payment of GST.
After conviction, but before sentencing, Mr Allan provided a letter from his new accountant saying that the GST appeared to have been overstated. The Judge refused to take the letter into account at sentencing.
Mr Allan was sentenced to one year's imprisonment and ordered to pay reparation of $80,000 (which included GST ($64,000) plus late payment penalties and interest).
The Court dismissed the conviction appeal. It dismissed the Crown's submission that the amount of GST owing was irrelevant at trial, as the amount of GST could be relevant to whether or not Mr Allan had an intention to evade the payment of GST by the company. However the Court dismissed Mr Allan's conviction appeal on the basis that there was ample evidence of intent, such that there was no risk that the new evidence could lead to a not guilty verdict.
At hearing, Mr Allan abandoned his challenge to the sentence of one year's imprisonment and limited his challenge to the amount of the reparation order, on the basis of the new accountant's evidence. The four issues arising are as follows:
Should the Judge have held a disputed facts hearing?
Mr Allan submitted that a disputed facts hearing should have been held before sentencing because the amount of GST was an aggravating fact that affected the amount of reparation. The Crown conceded that the amount of GST may be an aggravating factor for the purposes of sentencing, but argued that section 24(1)(a) of the Sentencing Act and the wide discretion that the trial Judge has to decide what facts were proved at trial allowed a Judge to decline to hold a disputed facts hearing where section 24(2)(b) is satisfied.
The Court stated that the accused has an absolute right not to present any evidence at trial and to put the Crown to proof. The trial Judge may therefore only hear Crown evidence on a point without any contrary evidence. The Court held that natural justice required that a disputed facts hearing be held when a convicted person wishes to call evidence that was not called at trial but which is relevant to any aggravating or mitigating factors. Under section 24(2)(a) of the Sentencing Act, the court must indicate to the parties the weight it would be likely to attach to the disputed fact if it were found to exist, and its significance to the sentence or other disposition of the case.
The Court held that a disputed facts hearing should have been held unless section 109 of the TAA precluded Mr Allan from challenging the amount of GST.
What is the relevance of section 109 of the TAA?
Section 109 of the TAA provides that no disputable decision may be disputed in a court and shall be deemed to be taken as correct. Section 24(2)(c) of the Sentencing Act provides that if a fact is relevant and disputed, the prosecutor must prove beyond reasonable doubt the existence of any disputed aggravating fact.
Mr Allan submitted that section 109 only applies to civil proceedings. The Crown submitted that on its plain meaning section 109 applies to both criminal and civil proceedings and relied on the Court of Appeal and Supreme Court judgments in R v Smith (2009) 24 NZTC 23,004 and Smith v R (2009) 24 NZTC 23,176 where the Supreme Court stated that there was no justification for giving the words of section 109 anything other than their plain meaning. The Crown submitted that there was no impairment of any right or freedom under the Bill of Rights Act.
The Court accepted that there was no impairment of the Bill of Rights Act, but rejected the Crown's submission as contrary to the essential principles of a fair trial. The Court held that there was no conflict between sections 24(2)(b) and (c) and section 109. Reparation is concerned with loss. A challenge to a reparation order is not a challenge to an assessment. The Court held that the Court of Appeal and Supreme Court's comments in Smith were obiter.
The Court stated that if it were wrong and there was a conflict, sections 24(2)(b) and (c) of the Sentencing Act would prevail over section 109. Alternatively, the Court would have read down section 109 as applying only to civil proceedings.
Should section 32(3) of the Sentencing Act have been considered?
On behalf of Mr Allan, it was submitted section 32(3) of the Sentencing Act should have been considered by the District Court Judge as if Inland Revenue had made default assessments, it would have mitigated its loss. The Court dismissed Mr Allan's submissions and held that the responsibility for the offending rested with Mr Allan and he could not blame Inland Revenue.
Should penalties and use of money interest be included in any reparation figure?
The Crown conceded that the loss to Inland Revenue is limited to the core tax evaded and that penalties and use of money interest should not be included as part of a sentence of reparation, as neither are a loss to Inland Revenue. The Court agreed with the concession made by the Crown as to penalties and use of money interest.
The Court granted Mr Allan's application to adduce further evidence and the appeal against sentence to reduce the amount of reparation to $51,407.70.
Tax Administration Act 1994, Sentencing Act 2002