Authority concludes notice of assessment correctly given but finds exceptional circumstances under s 89k
2016 case note - TRA concludes notice of assessment correctly given but finds exceptional circumstances under s 89K of the Tax Administration Act.
This case concerned two separate issues: first, when did the Commissioner of Inland Revenue ("the Commissioner") give notice of an assessment such that dispute rights commenced, and secondly, whether the Commissioner's decision to refuse to accept out of time a notice of proposed assessment ("NOPA") was correct. The Taxation Review Authority ("the Authority") held that notice was given when the Commissioner issued a notice of assessment to the taxpayer at its last known address. However, her decision to refuse to accept the late NOPA was incorrect as there were exceptional circumstances.
In relation to obligations under s 14 of the Tax Administration Act 1994 ("TAA"), the Judge adopted the Aitken (Chief Executive, Ministry of Fisheries v Peter Aitken and Anor 2009 Wellington Registry CIV-2005-485-001947) case, which means that the Commissioner need not make any enquiry as to a taxpayer's correct address and is able to give notice by sending it to the last known address.
Judge Sinclair's analysis of what constitutes notice of an assessment makes it clear that, while in some cases documents may be combined to form notice of an assessment, on these facts the claimed documents could not be read together to form notice of the assessment.
The judgment also provides some guidance on the application of s 89K of the TAA, although this guidance is specific to the facts in this case.
This decision concerns preliminary issues that were required to be determined prior to any hearing on the substantive tax issues.
The disputant (trustees of a trust) claimed a goods and services tax ("GST") refund which, following audit by the Commissioner, was reassessed to nil. The disputant contends that the Commissioner gave notice of the (re)assessment in a letter dated 23 January 2013, to which the disputant purported to issue a NOPA on 19 February 2013. No notice of response ("NOR") was issued by the Commissioner and the disputant claimed that the NOPA is deemed accepted and the Commissioner is liable to pay the refund claimed.
The Commissioner denies that the letter of 23 January 2013 was a notice of assessment and says the notice of assessment was given under cover of a letter dated 16 April 2013. The disputant says that notice was not given in accordance with s 14 of the TAA until a copy was included with a letter from the Commissioner dated 5 March 2015. The disputant then issued a second NOPA dated 30 March 2015, along with an application under s 89K of the TAA for that NOPA to be accepted out of time on the basis of exceptional circumstances. The Commissioner declined the application to accept the second NOPA out of time.
When did the Commissioner give notice of the assessment for the GST period ended 31 October 2008 so that dispute rights commenced?
Judge Sinclair concluded that notice of the assessment was given under cover of the Commissioner's letter dated 16 April 2013, and the letter of 23 January 2013 was not a notice of assessment. Accordingly, the purported NOPA dated 19 February 2013 was not valid and the Commissioner was under no obligation to have issued a NOR.
In May 2010 Mr S (whom the Commissioner understood to be the trustee of the trust) moved to China. In December 2010 he asked Inland Revenue to send any mail to a Chinese postal address. He also included an email address and a Chinese mobile number.
In July 2011 Mr S signed and filed a form headed "Elect someone to act on your behalf" appointing a trustee company to act on behalf of the disputant in its dealings with Inland Revenue. The form had an expiry date of 1 January 2020.
In December 2012 the Commissioner received a letter from Mr B, as trustee of the disputant, requesting payment of the GST refund given four years had passed since the GST return was filed. The Commissioner replied to Mr B on 23 January 2013 advising that the GST period referred to had been reassessed in December 2010, the trustee at the time had been advised, and that no refund was available.
The disputant claimed that the December 2012 and January 2013 letters, when read together, contained sufficient information to constitute notice of the assessment.
The Commissioner argued that the January 2013 letter did not have the characteristics of a notice of assessment as (1) it did not purport to be a notice of assessment and did not use those words; (2) it did not contain any particulars of the assessment, such as the tax periods, amount or extent of the assessment; (3) it asserted that the reassessment occurred over two years previously and had been notified accordingly; and (4) it asserted that no refund was available.
The TRA noted that no particular form is prescribed by which the Commissioner is required to give notice of an assessment to a taxpayer pursuant to s 111, that in some cases documents may be combined to form an assessment, and that each case will depend on its facts.
The TRA was satisfied that the January 2013 letter did not constitute a notice of assessment for the purposes of s 111 of the TAA. It was clearly written to answer the matters raised in the December 2012 letter, was not intended to be a notice of assessment and did not include the information expected to be contained in a notice of assessment. The TRA noted that the notice of assessment triggers dispute rights and is an important document in the disputes procedure.
It was accepted by all parties that the notice accompanying the letter of 16 April 2013 was a notice of assessment for the purposes of s 111 of the TAA, but what was at issue was whether the notice was given in accordance with s 14 of the TAA. The Commissioner posted the notice of assessment to the Chinese address provided by Mr S in December 2010. The Judge found there was no evidence that Mr S ever told the Commissioner not to use the Chinese postal address.
Judge Sinclair adopted the approach in Chief Executive, Ministry of Fisheries v Peter Aitken and Anor (2009 Wellington Registry CIV-2005-485-001947) that there was no obligation on the Commissioner to establish the correct address for the disputant, and that she was entitled to use the disputant's last advised postal address.
Was the Commissioner's decision under s 89K of the TAA to refuse to accept out of time a NOPA dated 30 March 2015 correct?
Judge Sinclair concluded that the Commissioner's decision under s 89K to refuse to accept the second NOPA out of time was incorrect and set it aside.
Section 89K(1) provides that the Commissioner may accept a late NOPA where (a) the Commissioner considers that an exceptional circumstance has prevented a disputant from issuing a NOPA; and (b) the NOPA is sent as soon as reasonably practicable after becoming aware of their failure to issue a NOPA within the response period.
Judge Sinclair concluded that there were exceptional circumstances in this case, that the disputant acted reasonably, and that events were a consequence of the following decisions and actions taken by the Commissioner:
- Although aware of the nomination of the trustee company to act on behalf of the disputant, the Commissioner did not act on this but asked Mr S to confirm that Mr A B (director of the trustee company, who had replaced Mr B as director after Mr B's bankruptcy) continued to have authority to act on behalf of the disputant. In the Judge's opinion, this overlooked that the nomination had been given to the trustee company;
- Inland Revenue knew Mr S was resident in China. He gave an email address as his contact address and during a telephone conversation gave authority to send correspondence by email. Although some correspondence was sent by email, the Commissioner did not ask Mr S to sign the email consent form, and the notice of assessment was sent to the disputant by post only;
- Despite giving 28 days for reply to questions, the Commissioner issued the notice of assessment before this period expired. The Judge considered that the disputant was entitled to expect that the specified time would be available for reply before the Commissioner took further action;
- The disputant was not expecting the service of the notice;
- Correspondence sent in response to Mr B's December 2012 letter was addressed to an incorrect post office box number;
- The Commissioner did not take any action after documents were received on 7 May 2013 which showed that Mr S had retired as trustee some months earlier and that Mr B had been appointed trustee.
The TRA concluded that the disputant had met the second limb of the test (i.e. issuing the NOPA as soon as reasonably practicable). When asked by the disputant in November 2014 to pay the GST refund, the Commissioner replied that a notice of assessment had been issued in April 2013, although the Commissioner did not attach a copy of the notice of assessment to her letter. The disputant wrote again in November 2014, which was not replied to until 5 March 2015, this time attaching a copy of the notice of assessment. The disputant then issued a NOPA on 30 March 2015 and made an application under s 89K of the TAA. Judge Sinclair considered that the disputant had responded as soon as reasonably practicable after becoming aware of the giving of the notice of assessment, which was following receipt of the Commissioner's letter of 5 March 2015 and a copy of the notice of assessment.
Tax Administration Act 1994 ss 14, 89K, 111