No deemed acceptance of a late NOPA
2011 case note - the usual dispute resolution procedures do not apply to a late Notice of Proposed Adjustment where no 'exceptional circumstance' is raised.
The usual dispute resolution procedures under Part 4A of the Tax Administration Act 1994 ("TAA") (including deemed acceptance under section 89H(2)) do not apply to a late Notice of Proposed Adjustment (NOPA) where no "exceptional circumstance" is raised in accordance with section 89K.
Impact of decision
This decision confirms that a valid timely NOPA is a prerequisite to deemed acceptance under section 89H(2). Deemed acceptance does not occur if the Commissioner fails to reject an invalid late NOPA with a compliant Notice of Response (NOR) within the applicable response period. Nevertheless, the Taxation (Tax Administration and Remedial Matters) Act 2011 has now amended the TAA and the new section 89K provides that a taxpayer may challenge the Commissioner's decision to refuse to issue a notice in favour of the taxpayer under the new section 89K(1) by filing proceedings within two months of the notice's issue.
The taxpayer appealed against the decision of the Taxation Review Authority (TRA) which was delivered on 11 April 2011. The TRA held that the Commissioner's failure to respond to the taxpayer's late NOPA with a compliant NOR did not amount to a deemed acceptance of her proposed adjustment.
In February 2004, the taxpayer's accountant had sought deductions for a company owned by the taxpayer. The effect of such deductions would have been to reduce the taxpayer's income. That request was declined by the Commissioner. Debt collection proceedings commenced and a meeting between the taxpayer and Inland Revenue was held on 27 November 2009.
The taxpayer claimed that she was invited by the Commissioner to file an out-of-time NOPA at the 27 November 2009 meeting. The taxpayer subsequently filed her late NOPA on 3 December 2009. No application for exceptional circumstances was made by the taxpayer.
On 4 December 2009, the Commissioner issued a letter rejecting the taxpayer's late NOPA on the grounds that it was outside the applicable response period. It was not contended that the Commissioner's letter constituted a compliant NOR.
Justice Heath upheld the decision of the TRA and rejected the taxpayer's appeal. His Honour held that section 89K of the TAA is a discrete code designed to deal with late NOPAs and that the usual disputes resolution procedures under Part 4A do not otherwise apply to late NOPAs.
His Honour held that it is only if the Commissioner considers that there has been an exceptional circumstance preventing a taxpayer from providing a NOPA within the applicable response period and the taxpayer sends a late NOPA, that under section 89K(1)(d), the latter is "treated for all purposes under this Part as if it had been given within the applicable response period".
His Honour held that the usual dispute resolution procedures under Part 4A of the TAA (including deemed acceptance under section 89H(2)) did not apply to the taxpayer's late NOPA as no application for exceptional circumstances had been made by the taxpayer.
His Honour also held (consistently with section 138E(1)(e)(iv) of the TAA) that the Commissioner's decision to decline to receive a late NOPA is not subject to challenge.
Income Tax Act 1994, Income Tax Act 2004, Income Tax Act 2007 and Tax Administration Act 1994