Taxpayer unsuccessful in application for order allowing purported objections

Summary

The applicant sought an order from the Taxation Review Authority ("TRA") directing the Commissioner of Inland Revenue ("the Commissioner") to allow purported late objections. The TRA held that the objections were not made in accordance with the Tax Administration Act 1994 ("TAA") and declined to make the order sought. The TRA also held that the administrative law arguments raised by the applicant did not alter this conclusion.

Impact of decision

The case relates to the old objection procedure.

Facts

The applicant (a car dealer operator until 1993), having ceased trading and having no funds to pay outstanding pay as you earn ("PAYE"), was put into liquidation in September 1994 and the Official Assignee was appointed liquidator.

Having conducted an investigation of the applicant's tax affairs and ascertained discrepancies, the Commissioner wrote to the Official Assignee on 14 August 1995 enclosing a notice of determination of loss ("NODL") for the 1991 to 1994 tax years. Each NODL was addressed to the Official Assignee and included the applicant's IRD number. It was also made clear that any objection was to be made within two months.

On 26 October 1995, the Commissioner wrote another letter (with the applicant's name and IRD number recorded) to the Official Assignee with an NODL for the 1995 tax year attached to it. The time by which any objection was to be filed was not specified on the NODL as the form read "Any objection … must … be delivered … within [gap] month from the date of this notice".

The Official Assignee did not give any notice of objection to the Commissioner in accordance with section 126 of the TAA in relation to the NODLs issued for the 1991 to 1995 income tax years.

The applicant's tax returns for the 1991 to 1995 years had been filed by Mr X. In August 1996 the Commissioner wrote informing Mr X that he was not recognised as the applicant's tax agent.

The applicant was struck off in May 1996 and re-registered in July 1997.

On 19 December 1997, the Commissioner sent copies of the NODLs for the 1991 to 1995 years to Mr X as he requested. Having received the copies, Mr X wrote two letters to the Commissioner, one raising concerns over the validity (the validity letter) of the NODLs and the other purporting to give notice of objection to the NODLs (the fresh objection letter). The Commissioner, on 14 January 1998, wrote to Mr X acknowledging receipt of the validity letter and stating that the points raised were not accepted.

On 6 March 1998, Mr X wrote to the Commissioner asking her to clarify her position in respect of the "alleged invalid NODLs". The Commissioner replied on 18 March 1998 stating that the late objection letter would not be considered until a determination was made as to whether Mr X was authorised to file a late objection.

In April 1998, a Points of Objection Notice was served on the Commissioner in relation to the 1991 to 1994 years. The Commissioner did not respond to this Points of Objection Notice and did not state a case to the TRA. No Points of Objection Notice was received in respect of the 1995 year.

The applicant was again put into liquidation in June 1998, and remained in liquidation until it was struck off in May 2005. Mr X was purportedly appointed as receiver of the applicant in May 2005, but as the applicant was struck off, the notice of appointment was returned to Mr X. The applicant was subsequently re-registered in October 2010, and the notice of appointment of receiver was filed shortly afterwards.

In 2010 the Commissioner began an investigation into the applicant's tax affairs. Having been advised by the Commissioner in 2013 that the assessments for the 1991 to 1995 years were final, the applicant filed an application pursuant to regulation 6(4) of the Taxation Review Authority Regulations 1994 ("Regulations") for an order directing the Commissioner to allow the purported objections.

Decision

Validity of NODLs

In determining the validity of the NODLs, the TRA considered a number of arguments raised by the applicant, such as the applicant's name not being on the NODLs, the NODLs being sent to the Official Assignee, and issues regarding the date for lodgement of the objections.

The TRA did not find the absence of the applicant's name on the NODLs to be an issue affecting their validity, as the NODLs recorded the applicant's IRD number, and were sent under cover of letters recording the name of the applicant and the applicant's IRD number. There was therefore no uncertainty as to the identity of the taxpayer and the subject of each NODL.

The TRA also rejected the applicant's submission that the NODLs ought to have been sent to Mr X, noting that on liquidation the address for service for the applicant became the office of the Official Assignee and that the NODLs were properly given to the Official Assignee. The TRA distinguished the case of Case U45 (2000) 19 NZTC 9,397 relied on by the applicant, and referred to Case R15 (1994) 16 NZTC 6,087, where the TRA held that from the date of liquidation it was not competent for any person other than the liquidator to lodge an objection to assessments of taxation liability in years prior to the date of commencement of the liquidation.

The TRA then considered the issue regarding the date for lodgement of objections. The TRA noted that no notice of objection was given for the NODLs for the 1991 to 1994 income tax years within the timeframe specified, being two months from the date of the NODL. The NODLs for these years were held to be valid and enforceable.

As to the NODL for the 1995 tax year, the TRA referred to section 126(1) of the TAA where it is intended that a time period will be specified in the NODL. The TRA stated that there is a need for certainty as to the time frame to ensure that a taxpayer's objection rights are not prejudiced and it is not sufficient for the TRA to simply imply a reasonable time period and then fix what that period should be. In the TRA's view the NODL was not properly completed by the Commissioner, and it was therefore invalid and of no legal effect.

Purported late objections

The TRA considered that the copies of the NODLs sent to Mr X on 19 December 1997 following Mr X's request did not amount to the fresh service of those NODLs and the commencement of a new objection period. The purported late objections were not accepted by the Commissioner as late objections under section 126(2) of the TAA. It was clear from the Commissioner's letter of 18 March 1998 that the fresh objection letter would not be considered as to whether it could be accepted as late objections to the NODLs until the issue of Mr X's authorisation was cleared up.

The TRA concluded that the application could not succeed as the objections were not made in accordance with section 126(1) of the TAA and were not accepted by the Commissioner under section 126(2). However, the TRA went on to address the remaining arguments raised by the applicant.

Case stated

The applicant argued that the purported objections had to be considered relying on section 127(1) of the TAA, which provides "The Commissioner shall consider all such objections …".

The TRA rejected this argument as the word "such" refers back to objections in accordance with section 126 of the TAA.

The TRA also rejected the applicant's argument that the purported objections were considered and disallowed by the Commissioner in accordance with section 127 of the TAA. The applicant referred to the Commissioner's letter of 14 January 1998 in that regard. The TRA agreed with the Commissioner that the letter was not in response to the purported objections. The TRA noted that under section 134 of the TAA, the Commissioner must consider the objection and reach a decision before the case can go before the TRA, and that there is no time limit imposed in consideration of an objection (relying on FB Duvall Limited v Commissioner of Inland Revenue (2006) 22 NZTC 19,866 (CA), at [29]).

The TRA found that as there was no objection to be heard, the Points of Objection Notice relating to the 1991 to 1994 years was of no effect and the Commissioner was not required to state a case to the TRA for those years. As the NODL for the 1995 year was invalid and the Points of Objection Notice did not refer to that year, the Commissioner was never required to state a case in relation to that year.

Vendetta, improper motive, section 6 of the TAA and section 27 of the New Zealand Bill of Rights Act 1990 ("BORA")

In relation to the applicant's allegation that the Commissioner's actions were governed by improper motives as part of a vendetta against Mr X, the TRA applied the approach of the Court of Appeal in Dandelion Investments Limited v Commissioner of Inland Revenue [2013] 1 NZLR 600 (CA). In that case it was held that the TRA's role was one concerned with the correctness of the assessment, and it did not extend to conducting a broad-based judicial review of the process leading up to assessment and disallowance of the objection and subsequent conduct of the proceeding.

The TRA also rejected the applicant's allegation that the Commissioner was in breach of section 6 of the TAA and section 27 of the BORA. The TRA found that the procedures were followed properly and that natural justice did not require the Commissioner to state a case.