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09 Aug 2016
Appeal Status

Application of time bar provisions - s 108 and 108B of the Tax Administration Act 1994

2016 case note - Taxation Review Authority decision on a preliminary time bar issue dismissing the disputant's claim.

TRA 019/15 [2016] NZTRA 08

Section 108 of the Tax Administration Act 1994


This is a decision of the Taxation Review Authority on a preliminary time bar issue dismissing the disputant's claim in relation to the application of time bar provisions to the assessments in respect of the disputant's 2001-2005 tax years.


The decision provides clarification on the interaction between ss 108 and 108B of the Tax Administration Act 1994 ("TAA"). In particular, the decision reinforces the wide powers that the Commissioner of Inland Revenue ("the Commissioner") has to reopen the time bar pursuant to s 108(2) of the TAA where the required opinion has been formed. 


This decision concerns preliminary issues raised by the disputant regarding the application of the time bar provisions in relation to a challenge commenced in 2015.

In October 2006 an investigation was commenced into the disputant's tax affairs for various income tax years including the 2001-2005 tax years.  Following a lengthy investigation, the Commissioner commenced the disputes process in March 2010.

In October 2010 during the conference phase of the disputes process, a notice of time bar waiver ("the waiver") was signed. The waiver recorded that the existing time bar for the 2001-2005 tax years of 31 March 2011 would be waived for 12 months to 31 March 2012.

In August 2013 the Commissioner issued a Statement of Position in which she contended that the disputant's taxable income had been understated and that she was able to reopen the time bar for the relevant tax years on the grounds that the returns were fraudulent or wilfully misleading or alternatively they failed to mention income.

Following the conclusion of the disputes process the Commissioner made amended assessments on the basis that:

  1. amounts deposited into various business and personal bank accounts were the disputant's assessable income as dividend income; employment income; income under ordinary concepts; or beneficiary income from a trust; and
  2. one or other of the time bar exceptions in s 108(2) of the TAA applied to allow the Commissioner to amend the disputant's self-assessments so as to increase the amount assessed. 


Onus of proof

The disputant contended that, as the Commissioner alleges evasion in terms of s 141E of the TAA, the onus of proof rests with the Commissioner in accordance with s 149A(2) of the TAA. 

Judge Sinclair held that the onus of proof rests on the disputant because the Commissioner relies on both of the exceptions in s 108(2) of the TAA (one of which does not rely on fraudulent or wilfully misleading conduct). Notwithstanding the above, Judge Sinclair noted that the question of onus is irrelevant given that the Authority is not being asked to make any evidential findings in this preliminary matter. 

Issue 1

Judge Sinclair, having noted that ss 108 and 108B of the TAA perform different functions, found that by signing the waiver the parties agreed to delay the time bar specified in s 108 of the TAA for a period of 12 months. Her Honour did not consider that by agreeing to the waiver the parties agreed to a consensual limitation period which cannot be extended. 

Judge Sinclair considered that there is no restriction under s 108B of the TAA as to the circumstances when the Commissioner and a taxpayer can agree to a time bar waiver. Her Honour agreed with the Commissioner that it would be an absurd situation if a taxpayer could agree to a waiver which then imposed a limitation period that had the effect of removing the ability of the Commissioner to lift the time bar where tax returns filed by a taxpayer were later found to be fraudulent or wilfully misleading or that assessable income had not been mentioned.

Judge Sinclair did not agree with the disputant's submission that s 108B(1B) of the TAA indicates ‘implicitly' that the extended period provides a limitation to any disputed matter known to the parties. Judge Sinclair found that this subsection relates specifically to circumstances where the ground was not identified and known to the parties and that, as such, it does not follow that where a ground is known, the parties have agreed to a new limitation period.  

Judge Sinclair also noted that s 108(3) of the TAA makes it clear that the time limits which apply are those set out in s 108(1) and (2) of the TAA.

Issue 2

Judge Sinclair considered the history of the time bar period under s 108(2) of the TAA and, in particular, the provisions of the Land and Income Tax Amendment Act 1968 ("the 1968 Act"). Pursuant to the 1968 Act, the time bar period was amended from 10 years to provide that (where the Commissioner has formed the required opinion) it shall be lawful for the Commissioner to amend an assessment to increase the amount at any time. Judge Sinclair found that the purpose of the amendment was clearly to remove any time limitation period which would bar the Commissioner from amending an assessment where s 108(2) of the TAA applied.

Judge Sinclair disagreed with the disputant's submission that the calculation of the four year period under s 108(1) of the TAA should be fixed from the date the Commissioner formed the required opinion. In this regard Judge Sinclair considered the text of s 108(2) of the TAA to be clear and unambiguous in its meaning - no time period is specified and nor can one otherwise be implied.

Issue 3

Judge Sinclair, noting that the Commissioner has wide powers under s 108(2) of the TAA, did not consider that the Commissioner's exercise of her right to make amended assessments in any way breached her obligation under s 6 of the TAA to maintain the integrity of the tax regime.