No special circumstances justifying appearance by tax agent and District Court debt recovery proceeding is not appropriate forum to dispute assessment

Summary

There were no special circumstances justifying the appearance by the appellant's tax agent on the appellant's behalf in the District Court. The effect of section 109 and Tannadyce Investments Limited v The Commissioner of Inland Revenue is that the District Court debt recovery proceeding is not the appropriate forum for assessment matters to be raised.

Impact of Decision

This case is a further endorsement of the principles in the decision of Tannadyce Investments Limited v The Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153, namely that under section 109(a) of the Tax Administration Act 1994, no disputable decision may be disputed in a court or in any proceedings on any ground whatsoever except in objection proceedings under Part VIII or a challenge under Part VIIIA of the Act.

Facts

This is an appeal against a judgment of the District Court on a claim by the Commissioner of Inland Revenue ("the Commissioner") against the appellant for arrears of tax including some penalties and interest (Inland Revenue Department v Huston DC Manukau CIV-2011-092-000596, 31 October 2012).

While Mrs Huston ("the appellant") did not appear in the District Court, the appellant's tax agent, Mr J G Russell, attended the District Court on her behalf. However, the Court recorded that Mr Russell had no right of audience before the Court.

The central issue sought to be raised on behalf of the appellant in the District Court was that there had been failure by the Commissioner to transfer funds from another taxpayer's account which, it was contended, would have been sufficient to clear the base tax liability.

The Court held that the matter was essentially a tax recovery case where the assessments were not in fact disputed at all and found that the appellant's notice of proposed adjustment ("NOPA") did not relate to a disputable decision. The Court considered that while the appellant may have requested that the tax debt be paid by the appellant's family trust, that in itself did not relieve her of her statutory obligation to pay tax debts when they become due. Accordingly, the District Court entered judgment against the appellant.

Decision

The issues were considered separately by the High Court.

Whether the District Court erred in finding that Mr Russell was not entitled to appear on behalf of the appellant

Section 57 of the District Courts Act 1947 provides that except "under special circumstances" a party can only appear in person or through a barrister or solicitor.

The appellant advanced the argument that Mr Russell's detailed knowledge of her tax affairs and his expertise in the field constituted special circumstances for the purposes of section 57.

The Court found that these were not special circumstances and that if they were, it would justify granting leave to appear on behalf of a party in any case where the party engaged a specialised agent. Woodhouse J also considered that it would not have been possible on any proper basis for Mr Russell to not only appear effectively as the appellant's advocate, but also to give evidence on the appellant's behalf (which had been proposed). Further, the Court stated that the District Court's decision involved the exercise of a discretion and that there was no basis on appeal for interfering with the exercise of that discretion in this case.

Given the Court's decision on the right of audience issue, the High Court accordingly held that there was also no basis upon which evidence could have been called by Mr Russell or upon which Mr Russell could have cross-examined the Commissioner's witness.

Whether the District Court erred in finding that there was no disputable decision

The Court noted that there was unchallenged evidence in the affidavit of the Inland Revenue officer in respect of the assessed tax liability and that there was no challenge to the core assessments for the three years in question. This was expressly acknowledged by the appellant through Mr Russell. The Court considered that the dispute regarding the transfer of money from another taxpayer's account to pay the core tax of the appellant did not bear on the assessment (whether the argument was correct or not). In any event the Court found that it could not be a matter of enquiry in the District Court due to the effect of section 109 of the Tax Administration Act 1994 ("TAA").

Was the assessment proposed in the NOPA deemed to be correct?

The appellant argued that as a consequence of a NOPA issued by Mr Russell for the appellant, there was no tax liability. In broad terms, this was because the NOPA proposed credit transfers from a family trust to eliminate the liability. The appellant submitted that as the NOPA was not challenged by the Commissioner in accordance with the statutory procedures under the TAA, the assessment proposed in the NOPA was deemed to be correct.

The High Court was satisfied that the District Court came to the correct conclusion on this point as fundamentally, the contentions on behalf of the appellant could not be a matter of enquiry in the District Court, noting that this was the effect of both section 109 of the TAA and the decision of the Supreme Court in Tannadyce Investments Ltd v The Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153.

In any event, the Court noted that there was a response by the Commissioner to the NOPA by way of letter dated 13 July 2007 advising that a credit in the account of M & J Huston Family Trust had already been used to pay GST arrears (and therefore no funds were available for the transfer).

The High Court also recognised that the current proceeding was issued around four years after the NOPA was issued and therefore could not on any reasonable basis be construed as the equivalent of a statutory response. The Court considered that the Commissioner's claim made it clear that the Commissioner was proceeding on an entirely different basis from that proposed in the NOPA and therefore, the proper response on behalf of the appellant would have been either to seek leave to invoke the challenge proceedings in the TAA out of time for special reasons, or to seek judicial review of the Commissioner's decision to proceed with the claim for tax arrears which the appellant contended were not owing.

The High Court concluded that it is clear that the District Court proceeding for recovery of claimed tax arrears could not be the forum for raising the matters sought by Mr Russell. Accordingly, the Court considered it unnecessary to consider further submissions for the Commissioner as to whether the NOPA gave rise to a disputable decision and that in any event, for reasons already noted, such consideration would appear not to be a matter for enquiry in the current proceeding, whether in the District Court or in the High Court as the Court on appeal. The Court was therefore satisfied that the District Court had made the correct decision and the appeal was dismissed.