Tax on MSD benefit disallowed
2009 case note – Procedures in the Tax Administration Act the only way to challenge an assessment in the majority of cases - Income tested benefit, PAYE, ACC.
Income Tax Act 2004, Tax Administration Act 1994, Injury Prevention, Rehabilitation, and Compensation Act 2001
An application for judicial review of a decision of the Commissioner was struck out. The decision related to tax payments made by the Accident Compensation Corporation ("ACC"), reimbursing certain previously paid benefits.
Impact of decision
The Court reinforced the fact that the procedures in the Tax Administration Act ("TAA") are the only way to challenge an assessment in the majority of cases.
Between March 1998 and September 2005, the plaintiff received a domestic purposes benefit (the "benefit") from the Ministry of Social Development ("MSD"). During that time, MSD had on behalf of the plaintiff paid PAYE to Inland Revenue on the benefit.
The plaintiff was later found to be entitled to compensation from ACC for the period in which she was paid the benefit. The plaintiff was entitled to a lump sum payment of backdated ACC weekly compensation in relation to the 1998 to 2005 income tax years as well as ongoing weekly compensation from November 2005.
Because the plaintiff was no longer entitled to the benefit she had previously received from MSD; ACC calculated the lump-sum backdated entitlement by deducting an amount equivalent to the gross amount of the benefit paid by MSD for that period.
ACC paid to MSD the net amount of the benefit previously paid and paid Inland Revenue an amount equivalent to the PAYE tax deductions that MSD had paid Inland Revenue on behalf of the plaintiff.
The plaintiff brought judicial review proceedings against the Commissioner, challenging his decision to disallow her claim to a tax credit of around $10,000. The plaintiff claimed that ACC had no statutory right to deduct an amount equivalent to the PAYE tax paid on her behalf by MSD, and that ACC had no power to pay that amount to Inland Revenue.
The Commissioner applied to strike out the plaintiff's claim on the basis that the judicial review proceedings amounted to an abuse of process and nevertheless the claim was untenable.
Abuse of process
The Court was satisfied that the plaintiff's claim amounted to an abuse of process.
The Court referred to the Court of Appeal decision of Westpac Banking Corporation v Commissioner or Inland Revenue  2 NZLR 99 (CA), for the proposition that the TAA makes it clear that in almost all cases the only means of challenging a decision of the Commissioner is pursuant to the procedures contained in Parts IVA and VIIIA of the TAA.
The Court held that as the plaintiff was not satisfied with the Commissioner's adjudication decision, she should have issued challenge proceedings pursuant to the TAA.
The Court cited Buis v Accident Compensation Corporation (unreported, HC Auckland, 6 March 2009) and agreed with Rodney Hansen J that the excess benefit payment is the "grossed up" sum. Both the net amount, after tax, and the tax portion are required by section 252 of the Injury Prevention, Rehabilitation and Compensation Act 2001 to be withheld from the person entitled to compensation and dealt with in accordance with other statutory provisions or interdepartmental arrangements. The requirement is that the total sum is to be refunded to MSD.
The plaintiff is in the same position she would have been if she had never received the domestic purposes benefit in the first place. The ACC payment has replaced the benefit, and with a legitimate surplus to the plaintiff. If the plaintiff's contentions were correct, and by some means or another she was to get a credit for the $10,000, then she would receive a windfall of that amount.