Court confirms hardship provisions do not apply when Commissioner is pursuing bankruptcy
2017 case note - Court of Appeal confirms hardship provisions do not apply when CIR is pursuing bankruptcy - judicial review, application for financial relief.
On 1 November 2017 (reasons provided on 13 November 2017) the Court of Appeal gave judgment for the Commissioner of Inland Revenue ("the Commissioner") and dismissed the appellants' appeal against Lang J's dismissal of their application for judicial review. The appellants had sought a review of a decision by the Commissioner declining their application for financial relief.
The appellants claimed apparent bias and that the Commissioner had failed to take into account the appellants' inability to make mortgage payments.
Bankruptcy is not a debt recovery proceeding and the hardship provisions do not apply where the Commissioner is pursuing bankruptcy.
Mr and Mrs Singh (the appellants) appealed against Lang J's dismissal of their application for judicial review of a decision by the Commissioner declining their application for financial relief.
On several occasions between January 2014 and 2015, the appellants had unsuccessfully sought financial relief from paying their tax debts on the grounds of serious hardship. This led them to file judicial review proceedings. Before the scheduled hearing, the Commissioner agreed to reconsider her decision and the proceedings were vacated by consent.
Mr Philp (the collections manager with delegated authority) considered and declined the fresh application, which had first been the subject of a report and recommendation by Ms Law which had also been reviewed by two other Inland Revenue officers. The appellants were dissatisfied with the outcome and filed an amended statement of claim which was heard and dismissed by Lang J in December 2016.
First ground of appeal - apparent bias
The appellants contended that Lang J was wrong to dismiss their complaint that Mr Philp (as delegated decision maker) was disqualified from participating in the reconsideration process because of apparent bias. The Court considered this contention is "hopeless".
The Court held that the mere fact that Mr Philp had previous involvement fell far short of apparent bias. The Court held that the allegation should not have been made on a manifestly inadequate foundation.
The Court agreed with Lang J that there was no basis on which a reasonable and fair-minded observer might reasonably apprehend that Mr Philp would not bring an impartial and open mind to his responsibility to determine the further relief application.
Second ground of appeal - alleged failure to take account of the appellants' apparent inability to make mortgage payments
The appellants also contended that the Commissioner had failed to take into account their failure to make mortgage repayments. The Court held that the appellants' pleading on this ground was inadequate with no more than a bald conclusory assertion with no facts or circumstances pleaded in support. The Court stated that the inadequacy of the pleading may be explained by the fact that the claim is baseless.
Decision and concluding observations
The Court was satisfied that the appellants' complaints against the Commissioner were "completely unjustified" and rightly rejected by Lang J.
The Court turned to the legislative provisions for granting relief. The Court confirmed the constraints of s 176 of the Tax Administration Act 1994 ("TAA"):
- The Commissioner may not recover outstanding tax if this would be an inefficient use of her resources; and
- The Commissioner may not recover outstanding tax where recovery would place the taxpayer in serious hardship.
The Court noted that s 177C(1) of the TAA provides that the Commissioner may write off outstanding tax that cannot be recovered. The Court further noted however that s 177C(1BA) makes it clear that there is no obligation to do so, even where recovery of the outstanding tax would place the taxpayer into serious hardship.
The appellants' request for financial relief did not involve any proposal for payment and faced with the option of either writing off the entire debt and receiving nothing, or pursuing bankruptcy, the Commissioner was entitled to pursue bankruptcy, which would enable the Official Assignee to take control of the appellants' financial affairs.
The Court also commented on the decision of Toogood J in P v Commissioner of Inland Revenue  NZHC 229 and particularly paragraphs -. The Court considers that bankruptcy proceedings are not properly characterised as debt recovery proceedings. Accordingly there is no obligation on the Commissioner to write off outstanding tax and she may pursue bankruptcy proceedings where appropriate.
Tax Administration Act 1994, ss 176, 177, 177C