Application for leave to appeal Taxation Review Authority decision out of time dismissed

Summary

The taxpayer's application for special leave to appeal the Taxation Review Authority's ("TRA's") decisions out of time was dismissed.

Impact of decision

This decision confirms the principles relevant for leave to permit an appeal to proceed out of time. The decision also confirms that new arguments not sufficiently identified in a Statement of Position ("SOP") without earlier being granted leave cannot be used to support a leave application extending the time period for an appeal.

Facts

The taxpayer applied for special leave extending the time period for the appeal of two decisions of the TRA, Case 9 ([2012] NZTRA 9, (2012) 25 NZTC 1-012) and Case 7 ([2013] NZTRA 7, (2013) 26 NZTC 2-006). Leave was required because the taxpayer was out of time to file an appeal. The Commissioner of Inland Revenue ("the Commissioner") opposed leave being granted.

The TRA's two decisions relate to the taxpayer's liability for PAYE for shearers and shed hands in the 2005-2007 tax years, as well as associated shortfall penalties.

The Commissioner was successful in striking out the taxpayer's notices of claim in Case 9 subject to leave being granted for the taxpayer to apply to be heard on two discrete issues. The taxpayer failed to apply to have the matter determined within the one-month timeframe. However, the taxpayer filed a memorandum applying to be heard and to reconfirm its objection. The TRA gave the taxpayer a further opportunity to file briefs of evidence. However, the affidavits filed purported to "evidence a wide ranging and radical case well outside of the scope of the leave granted" (at [21]). In Case 7, the Commissioner was successful in striking out the two remaining live aspects of the claim and for summary judgment.

The taxpayer claimed that since January 2005, it has not employed the shearers and shed hands and accordingly, it is not the entity responsible for PAYE. The taxpayer claimed that Maunga Hikurangi Koporeihana (Māori Inc) was responsible instead.

Decision

Mallon J dismissed the taxpayer's application for special leave extending the time period for the appeals.

Principles relevant to leave

Her Honour relied upon the Court of Appeal case My Noodle Ltd v Queenstown Lakes District Council [2009] NZCA 224, (2009) 19 PRNZ 518,in her restatement of the following principles:

1. the overriding consideration in determining whether to permit an appeal to proceed out of time is the interests of justice; and
2. relevant to where the interests of justice lie are the prospective merits of the appeal, the conduct of the parties, the reason for the delay and the length of the delay, and the extent of any prejudice flowing from permitting the appeal to proceed out of time.

The merits

Mallon J outlined the procedure by which an assessment may be challenged including the requirement under s 89M(6) of the Tax Administration Act 1994 ("TAA") for a disputant to file a SOP with sufficient detail to fairly inform the Commissioner. Her Honour referred to the Court of Appeal decision of Vinelight Nominees Ltd v Commissioner of Inland Revenue ([2013] NZCA 655, (2013) 26 NZTC 21-055 at [31])in support of the legal proposition that a SOP must identify any given issues "with sufficient clarity to cause a reasonable party to recognise it as such".

Her Honour also referred to s 138G of the TAA, which relevantly provides that a party may only refer to the issues disclosed in the SOPs.

Her Honour held that the new argument advanced by the taxpayer was not advanced in its SOP such that a reasonable party would be able to recognise it.

The taxpayer had submitted that Māori Inc was a valid entity under law as either a quasi-corporation or an unincorporated body (despite not being incorporated under the Te Ture Whenua Māori Act 1993 as a Māori incorporation). Mallon J considered it a "stretch" to say that an intended Māori incorporation, which had not yet been recognised by an order of the Māori Land Court, has a legal status that should be recognised for tax purposes just because in other contexts whanau and hapu have been recognised as having status for some purposes, when the tax legislation does not provide for this.

Her Honour held that a contract with Māori Inc, trading as NZCS, is a contract with those individuals, and any other individuals on whose authority the contract was entered into. The taxpayer had not established that the contracting relationships it relied on existed despite the time and opportunity to do so. In such circumstances Mallon J held that the taxpayer could not discharge its onus to show that the Commissioner's assessments were wrong.

The second issue on which leave was reserved by the TRA in Case 9 was whether the taxpayer genuinely believed it was not obliged to pay PAYE. Despite the TRA's statement that the taxpayer could not discharge its onus, her Honour said it was clear that the TRA was not reversing the onus on a strike-out application.

Overall, Mallon J held that the merits of the proposed appeal were low and did not point in favour of granting special leave.

Conduct

Her Honour held that the taxpayer's conduct did not support granting leave. The TRA had provided many opportunities for the taxpayer to advance its claim on a proper basis.

The length of and reason for the delay

Her Honour did not consider it clear that an appeal from Case 9 was necessary, and as the delay in responding to Case 7 was not long and was explained, her Honour held that if other factors had favoured the granting of special leave then the delay would not have counted against the taxpayer.

Prejudice

The taxpayer drew an analogy with counsel incompetence in the criminal context arguing that there would be a miscarriage of justice if the appeal did not proceed. However, Mallon J did not consider the analogy apt and noted that there was no suggestion that the taxpayer was anything other than content for the Māori sovereignty arguments to be advanced. Nevertheless, her Honour accepted that if the wrong entity had been assessed, this factor would point in favour of granting special leave. However, there would need to be some real prospect that the appeal could succeed and in her Honour's view there was not.

Overall assessment

Mallon J considered that it was not in the interests of justice to grant special leave for the taxpayer to bring its appeal. The argument advanced by the taxpayer evolved over time and was not included in the taxpayer's SOP. The taxpayer had made the choice to advance Māori sovereignty arguments and had had more than an adequate opportunity to alter its course and to seek to advance objections to the assessments on a legally valid basis. In any event, her Honour considered the new argument advanced by the taxpayer to have low prospects of success.