Interpretation of section 89K(1) of the Tax Administration Act 1994: the meaning of "as soon as reasonably practicable"
2015 case note – CIR properly refused to exercise discretion to accept the disputants' late statements as they were not issued 'as soon as reasonably practicable'.
This was a decision of the Taxation Review Authority ("TRA") confirming that the Commissioner of Inland Revenue ("the Commissioner") had properly refused to exercise her discretion to accept the disputants' late statements of position ("SOPs") as they were not issued "as soon as reasonably practicable" as required by s 89K(1) of the Tax Administration Act 1994 ("TAA").
The disputants issued proceedings under s 89K(6) of the TAA challenging the Commissioner's refusal to accept their late SOPs.
On 1 December 2009, the disputants took title to two residential properties ("the Properties") from the trustees of the G Trust and claimed goods and services tax ("GST") input tax deductions. The disputants had been incorporated to purchase the Properties with finance provided by the two finance companies which had financed the G Trust. The G Trust was controlled by Mr G, who was facing various creditor claims and charges of tax evasion.
By letter dated 7 October 2010, the disputants were notified of the Commissioner's decision to assess the disputants' GST as nil without the issue of notices of proposed adjustment in accordance with s 89C(eb) of the TAA.
On 31 May 2013, Ms Y, the disputants' accountant requested all information held by the Commissioner in relation to the disputants pursuant to the Official Information Act 1982 ("OIA").
On 17 June 2013, the Commissioner replied stating that the information would be supplied when the Commissioner's SOPs and disclosure notices were issued. The SOPs and disclosure notices were issued on 11 September 2013. However, the information requested under the OIA was omitted. The information was eventually sent by courier under a covering letter of 11 October 2013 albeit it was incorrectly addressed.
The disputants requested an extension to file their SOPs, which they were granted until 12 December 2013. On 11 December 2013, Ms Y advised that she was still waiting for the relevant information and requested a further extension to file the disputants' SOPs.
In a letter dated 23 December 2013, the disputants were advised that there was no statutory authority for the Commissioner to provide an extension in relation to the issue of a SOP outside of the response period and were referred to s 89K of the TAA.
It was accepted by the disputants that the folder of documents was received on 15 January 2014.
On 25 March 2014, the disputants' counsel wrote to the Commissioner seeking confirmation that if SOPs were provided within three weeks of the Commissioner's response that they would be accepted as being within the required timeframe. On 2 April 2014, the Commissioner declined to give such a confirmation.
The disputants' SOPs were provided to the Commissioner under cover of a letter dated 22 May 2014. In that letter the disputants made an application that the SOPs be accepted under s 89K of the TAA as having been provided within the applicable response period.
On 23 July 2014, the Commissioner refused the disputants' application.
The TRA was firmly of the view that the disputants in the two challenges had failed to issue their SOPs "as soon as reasonably practicable" as required by s 89K of the TAA and the Commissioner had properly refused to exercise her discretion to accept the late SOPs.
Judge Sinclair acknowledged that the Commissioner's investigation was protracted and complicated by her wider investigation. However, her Honour agreed with the Commissioner that the time taken to complete her investigation is not a relevant factor when considering the disputants' response time.
The TRA stated that allegations of sham and tax avoidance are not uncommon and that the law in relation to both areas is reasonably settled. Accordingly, while careful analysis of the facts was required, no matters of particular complexity had been identified by the disputants that would have made the preparation of their SOPs especially time consuming.
Judge Sinclair further stated that the disputants had the ability to apply to the High Court for an extension of time for issuing their SOPs before the expiry of the response period but had failed to do so.
The TRA found that in effect the disputants had taken over six months to provide their SOPs from the date that they were originally due. The TRA also found that the disputants had shown no urgency in responding to the Commissioner's SOPs and that it was reasonable to expect that preparatory work on the SOPs would have been commenced by the disputants prior to receipt of the documents requested under the OIA.
Judge Sinclair considered it to be of particular importance that the matters arose within the disputes process contained in Part 4A of the TAA where there are strict time frames within which particular steps are to be taken.
Tax Administration Act 1994