Judicial review of decision not to recalculate
2014 case note - judicial review of decision not to recalculate following a tax challenge - collections, s 6/6A powers, Trinity scheme.
This was a judicial review by Trinity investors asserting that following a tax challenge, the subsequent collection/recovery of tax is a new phase and there is a duty on the Commissioner of Inland Revenue ("the Commissioner") to recalculate the amount owing. The High Court rejected that there was any such duty and noted the Commissioner is entitled to collect the amount fixed in the challenge proceedings.
Impact of decision
The taxpayer is obliged to pay on completion of the challenge procedure and if the taxpayer does not pay, the Commissioner is obliged to collect unless it is impracticable to do so. The High Court did not consider there is any intervening duty to reconsider the amount of the taxpayer's liability if proceedings to collect are required.
Mr Peebles and Mr Bradbury ("the plaintiffs") were investors in the Trinity tax avoidance scheme and were unsuccessful in their tax challenges against the Commissioner in the High Court, the Court of Appeal and Supreme Court.
The Supreme Court judgment, Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue  NZSC 115,  2 NZLR 289, was issued in December 2008 and since then the plaintiffs have not paid the amount they were assessed or any additional amount that has accrued over that time.
In December 2013, the Commissioner issued recovery proceedings ("the proceedings") to obtain summary judgment against the plaintiffs for sums she disputes are owed.
The plaintiffs, in turn, sought judicial review against the Commissioner for refusing to discontinue the recovery proceedings against them.
The judicial review was premised on the argument that, notwithstanding the Supreme Court's determination of their tax challenge, the Commissioner should have recalculated the tax due under a different provision of the Income Tax Act 1994. The plaintiffs argued that the Commissioner has a duty not to seek to recover more tax than is properly payable and that the Commissioner failed to have regard to that duty, therefore she made an error of law when she decided to commence/continue with the proceedings.
The Commissioner opposed the plaintiffs' application on the following grounds:
- the decision to commence or continue proceedings to recover tax is not amenable to review;
- she is not subject to any duty to the plaintiffs in the nature alleged; and
- if a ground of review was established, the Court ought to decline relief on the basis that the plaintiffs' application is another attempt to avoid or delay meeting their obligations.
Is a decision to commence and/or continue with recovery proceedings amenable to judicial review?
Peters J considered the Commissioner's submissions on this issue, namely that the Court should not generally review a decision as to the conduct of litigation made by the Commissioner in discharging her duties in the care and management of taxes.
While there were several authorities in support of the Commissioner's submissions, her Honour made reference to Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC), where Randerson J stated Courts would be slow to intervene with such decisions but left open the possibility that the Court may intervene in such a decision if the Court is satisfied that the Commissioner had made a material error of law.
Accordingly, Peters J felt it was necessary to consider whether or not the Commissioner has a duty not to seek to collect more tax than is properly payable, even if there are assessments for greater amounts.
Does the Commissioner have a duty not to seek to collect more tax than is properly payable, even if there are assessments for greater amounts?
The plaintiffs argued that the collections phase is a new phase within which the Commissioner is required to review the position. Further, the Commissioner has a duty for collection purposes to recalculate the amount payable to ensure that she is not seeking to recover more than is actually payable prior to initiating recovery action.
The Commissioner argued that she is not subject to a duty to recalculate the amount of tax she is seeking to collect, and that the amount she was seeking was the correct amount, as confirmed by the Supreme Court judgment.
Peters J agreed that the Commissioner is not subject to a duty to recalculate the amount of tax before deciding to commence and/or continue with recovery proceedings if that taxpayer defaults in their obligation to pay and proceedings to collect are required.
Her Honour further noted that the Commissioner is entitled to seek the sum due from a taxpayer, which is fixed on the outcome of the challenge procedure. If the taxpayer does not pay the amount owed, then the Commissioner is obliged to collect unless it is impracticable to do so.
Given the High Court's findings on this issue, it was not necessary for her Honour to consider the other grounds argued. Accordingly, the plaintiffs' application for judicial review was dismissed.
Tax Administration Act 1994, Income Tax Act 1994